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.
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.
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.