Global brokerage firm Jefferies is cautious about the Indian stock market as it projects a nearly 10 per cent rise in the Nifty 50 benchmark by the end of 2025, setting a December-end target of 26,000. The index hit an all-time high of 26,277.35 on September 27 this year.

Jefferies highlighted that at 20.5 times one-year forward PE (price-to-earnings), Nifty’s valuation is nearly 6 per cent above the past five-year average. It expects the domestic market to rise 10 per cent over the next calendar year, in line with earnings growth.

Due to the cautious market outlook, Jefferies prefers large caps over mid-caps.

“Overweight banks remains our highest-conviction idea as growth gradually picks up. Our top picks are ICICI Bank, Axis Bank, SBI, Bharti Airtel, JSW Energy, TVS, Coal India, Godrej Properties and Sun Pharma,” said Jefferies.

Jefferies’s views on the Indian market 

1. Capex uptick to support growth: Jefferies expects a rise in capital expenditures (capex) to support 6.5–7 per cent GDP growth in 2025. 

“We expect growth in line with nominal GDP (nearly 10 per cent) as incrementally populist spending rises. The housing cycle is still strong, with inventories near 14-year lows. Private capex is also rising, with strong corporate balance sheets and opportunities in power, electrification, PLI schemes, building materials, etc., driving the spending,” said Jefferies.

2. Slowdown could be over by the first half of next year: Economic activities slowed during 2024 as national elections slowed government spending, while rainfall and festive season timings impacted activity in the year’s third quarter. Moreover, a regulatory-driven 5ppt slowdown in credit growth, which also impacted economic growth and consumption, Jefferies observed.

However, Jefferies believes a pickup in government spending early in the year, improved liquidity, and a lower base of activity later should imply a pickup in GDP growth. This will also improve corporate earnings.

3. Corporate EPS growth to improve: Jefferies expects earnings growth to improve to 13 per cent in FY26E, discounting a 2-3ppts downgrade from the current bottom-up expectation of 15 per cent.

“Sectors with double-digit earnings growth include industrials, property, banks, two-wheelers, and telecoms,” said Jefferies.

4. Rising supply to cap returns: Jefferies underscored that the Indian stock markets have been supported by large domestic equity demand, even as the FPIs have been small net sellers in 2024. The brokerage firm sees the possibility of this slowing down. However, FPI flows would likely act as a cushion.

“Equity supply has jumped to a record $60 bn over nine months of calendar year 2024. The supply accelerated in the second half as a few large IPOs (Hyundai, NTPC Green, Swiggy) added to the ongoing QIP/block supply. At $7bn per month over Jul–Nov’24, supply has caught up with domestic equity demand, and markets have been flat in the second half. We believe that the equity supply will stay elevated unless the market corrects,” said Jefferies.

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