Jefferies turns bullish on India as credit growth, capital inflows accelerate
Jefferies sees brighter India outlook on fastest bank credit growth in a decade, returning foreign inflows, and RBI measures supporting the rupee.
India's market prospects are improving, according to Jefferies, as bank credit expands at its quickest pace in over ten years, foreign equity inflows resume, and central bank policies bolster the rupee.
In his latest GREED & fear note, Christopher Wood, Jefferies' global head of equity strategy, highlighted several positive developments in the domestic economy. The brokerage has consequently revamped its India long-only portfolio, removing HDFC Bank—the country's largest private lender and a heavyweight in benchmark indices—along with PB Fintech, the parent of PolicyBazaar. They have been replaced by MCX and Lenskart Solutions, while REC has been swapped for Bajaj Finance. Eternal's allocation has been increased by one percentage point, funded by a reduction in Bharti Airtel.
Foreign investors purchased a net $2.12 billion of Indian equities in July, benefiting from the unwinding of the global memory chip trade. Despite this, they remain net sellers for the year, with total outflows reaching $25.86 billion, according to National Securities Depository data.
Wood emphasized that the acceleration in domestic lending is the more significant signal. Credit growth has climbed to 17–18% year-on-year, led by corporate lending at about 20%. Loans to agriculture and retail borrowers are also expanding at healthy rates, indicating broad-based demand.
Policy-driven inflows are adding a macroeconomic cushion. The Reserve Bank of India's foreign-currency inflow scheme—covering non-resident deposits, external commercial borrowings, and foreign-currency bonds—had mobilized about $41 billion by the end of July. Jefferies expects inflows to reach $80 billion–$100 billion by the September 30 deadline.
Additionally, the removal of tax on interest income for foreign purchases of government bonds has generated $8.7 billion in net inflows since early June, per exchange data. "All this increases the likelihood that the rupee should stabilise," Wood said. The currency recovered to 95.17 per U.S. dollar as of July 31, from a low of 96.96 in May.