Indian stock market: Despite the key benchmark indices, Sensex and the Nifty 50, ending respectively at their 32-month and 18-month lows last week on 8th October 2026, Jefferies believes the structural growth story remains intact, with the economic data remarkably resilient given the obvious geopolitical challenges faced by a country that remains a major energy consumer. In the quarterly Asia Maxim report dated 9th October 2026, Chris Wood, Head of Equities at Jefferies, wrote that the Indian economy has done well despite various challenges on the domestic and global fronts. It also justified the RBI’s 25 bps Repo Rate hike and predicted the Indian Rupee’s near-term bottom due to the generation of $144 billion through the FCNR bond.
Why are Nifty, Sensex under pressure?
If the Indian economy is doing so well, then why are the key benchmark indices — Sensex, Nifty and Bank Nifty — under pressure?
Replying to this question, Jefferies’ Chris Wood writes in the Asia Maxima report, “From a stock market standpoint, the mid and small-cap segment has been the most interesting part of the equity market. Smaller stocks have continued to outperform the big caps this year despite higher valuations. The Nifty MidCap 100 Index is trading on 22.9x 12-month forward earnings, compared with 17.0x for the Nifty. The Nifty Midcap 100 Index has declined by 1.9% year-to-date and is up 88% since the start of 2023, while the Nifty is down 13.4% year-to-date and up 25% since the beginning of 2023.”
As a result, Chris Wood writes in the latest Asia Maxima report that the top 20 stocks account for a declining share of India’s total stock market capitalisation, falling from 44% to 27% since 2020. This is the exact opposite of the global trend, given the surge in passive investing, which is enough to explain why the key benchmark indices — Nifty 50, Sensex and the Bank Nifty — are in the red in YTD. In fact, they have been in the negative zone for the last two years.
Jefferies finds this catch
The Jefferies Asia Maxima quarterly report dated 9 October 2026 says that the dynamism of the small- and mid-cap sector is extremely healthy, as are the continuing robust inflows into the domestic mutual fund industry. Monthly net inflows into domestic equity mutual funds have averaged ₹388bn (US$4.1bn) so far this year. But that inflow continues to be absorbed by equity issuance, which has picked up again in recent months. Monthly equity supply declined from a peak of US$10.4bn in June 2025 to US$1.0bn in April 2026 following the outbreak of the Iran war, but subsequently rebounded to US$9.5bn in August. This supply dynamic is having the practical impact of limiting the upside of the benchmark Nifty Index.
Indian economy’s performance in 2026
Jefferies’ Asia Maxima report added that performance has been much better than anyone expected at the start of this year. This is best captured by bank credit, which grew by 18.1% YoY in mid-September. Credit growth is strong across all segments. But corporate lending and loans to SMEs have been particularly robust. Corporate loans rose by 21.6% YoY in August, while loans to micro, small and medium industrial enterprises were up 25.5% YoY. This trend is also supported by healthy deposit growth, which rose by 17.3% YoY in mid-September.
What does the pickup in lending to SMEs suggest?
Chris Wood writes in the latest Jefferies’ Asia Maxima report that the pickup in lending to SMEs suggests that the GST reforms and labour reforms at the end of the last year, combined with the focus of the third Modi government on improving the ease of doing business and removing the last vestiges of the “Licence Raj”, may be starting to see some dividends.
What does the pickup in corporate lending hint at?
Pointing towards the pick in the corporate lending, the Head of Equities at Jefferies writes, “The pickup in corporate lending also suggests that the long-anticipated private sector capex cycle may finally be happening. Another sign is the increase in the import of capital goods. The annualised nominal gross fixed capital formation-to-GDP ratio has increased from a recent low of 31.4% in the four quarters to December to 32.4% in the four quarters to June. While imports of machinery goods have risen from US$29bn in FY21 to US$62bn in FY26 and US$66bn in the 12 months to August.”
As a result, he adds, India is on track to achieve 6.5-7% real GDP growth and nominal GDP growth of around 11-12% this fiscal year ending 31 March 2027. Jefferies’ India office expects the nominal GDP acceleration to lead to a pickup in earnings growth from 14% this fiscal year to 17% next fiscal year.
Disclaimer: This story is for educational and informational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified financial experts before making any investment decisions.
About The Author
