Even though there has been a rise in the stock market due to the Iran-America Peace Deal and the Sensex and Nifty have seen an increase of about 4 percent in the last three trading days, but this relief can also be a guest of only a few days. In fact, such a report of the leading brokerage firm Jefferies has come out, which has raised alarm bells of Rs 30 lakh crore. Even though India's stock market is supported by domestic funds despite the biggest ever selloff by foreign institutional investors (FIIs) starting from September 2024, the sensational report by Jefferies has given sleepless nights to experts and investors. Jefferies has warned in its latest report that the world's big funds that track emerging markets at the global level are currently 'underweight' on India. This simply means that these funds are investing much less in the Indian stock market than their fixed limit or benchmark index.

What is Jefferies report?

Jefferies has done an inside analysis of the portfolios of 70 major emerging market (EM) funds in the world based on data till March 2026. These funds together have huge capital of about 320 billion dollars i.e. (about Rs 30 lakh crore). This review revealed that out of the total funds, 61 percent of foreign investors are in underweight position regarding India. The position of foreign portfolio investors (FPIs) is down by 0.4 percentage points against the benchmark MSCI Emerging Markets Index. If we look at the average of the last 10 years, these global funds were always 'overweight' (invested 2 to 3 percentage points more) in the Indian market. But now this confidence of foreign investors seems to be wavering.

3 big reasons for the indifference of foreign investors

Jefferies equity analyst Mahesh Nandurkar said in his report that in recent conversations with American investors, some important concerns about India have come to the fore:

1. Expensive Valuation: Foreign investors believe that the valuations of Indian companies' shares have become too expensive compared to the earnings growth. Currently the MSCI India Index is trading at a 70 per cent premium (expensive multiple) to its fellow emerging markets.
2. AI and Tech Boom: At present, at the global level, foreign investors are attracted towards tech-heavy market companies (like TSMC, Samsung, SK hynix) like Taiwan and South Korea, where huge earnings are being made due to the Artificial Intelligence (AI) revolution. Indian companies seem to be lagging behind at the global level in this cycle of earnings upgrade.
3. Indian rupee weakening: Rupee has become a big headache for foreign investors. Since the beginning of the year 2026, the rupee has fallen by more than 5 percent against the dollar. At the same time, there has been a cumulative decline of 13 percent from September 2024 till now, due to which the dollar returns of foreign investors are being affected.

What should investors do next?

Even though foreign investors are cautious about the main index of the Indian stock market, Jefferies believes that even amidst this recession, there will be rain of money in certain sectors. Jefferies has given a heavy weightage of 20 percent to Hard Assets in its model portfolio, whereas in the benchmark it is only 8 percent.

According to Jefferies, foreign investors and domestic traders are now looking for new ideas. Tremendous growth is expected in sectors like power utilities, hospitals, airports and real estate in India. Jefferies' favorite list includes strong stocks like JSW Energy, Adani Ports, Premier Energies, and Lodha.

This '$320 billion danger' report by Jefferies makes it clear that unless the Indian stock market balances its expensive valuations with earnings growth, a large and aggressive return of foreign institutional investors (FIIs) is difficult. However, it is a matter of relief for the Indian market that the money of domestic retail investors and mutual funds is continuously saving the market from falling.