India Earnings to Grow 14% in FY27, But $29B Foreign Exit Shakes Market

For equity investors tracking emerging markets, the latest Jefferies report presents a classic capital-allocation dilemma: India’s earnings fundamentals are strengthening with a projected 14% EPS surge in FY27, yet the market has been swept by a record $29 billion foreign exodus in just six months. The core driver isn’t India-specific risk, but the meteoric rise of Korea’s weight in the MSCI EM Index. This divergence between improving bottom-up corporate metrics and top-down index rebalancing is reshaping the risk-reward calculus for Indian equities.

The Jefferies GREED & Fear report, released on July 17, 2026, projects a significant acceleration in earnings growth for companies in the MSCI India Index, with EPS growth expected to rise from 10% in FY26 to 14% in FY27 and further to 17% in FY28. This outlook marks a robust recovery trajectory, following a surge of 41% in FY22, normalization to 10% in FY23, 18% in FY24, and a moderation to 12% in FY25. The forecast underscores India’s corporate fundamentals strengthening over the coming two fiscal years, but it is juxtaposed against a complex backdrop of massive foreign investor outflows, geopolitical headwinds, and structural shifts in emerging market index compositions.

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The Jefferies GREED & Fear report, released on July 17, 2026, projects a significant acceleration in earnings growth for companies in the MSCI India Index, with EPS growth expected to rise from 10% in FY26 to 14% in FY27 and further to 17% in FY28.

The core of the report highlights a critical divergence: while domestic earnings prospects are brightening, India has become an “inverse AI trade” in global equity markets. As global investors flooded into AI-related tech hardware stocks in Korea and Taiwan during the first half of 2026, dedicated emerging market funds rotated out of Indian equities on an unprecedented scale. This rotation was primarily driven by Korea’s surging weight in the MSCI Emerging Market Index, which skyrocketed from 9.0% to 23.7% from the beginning of 2025 to the end of the second quarter of 2026. The effect was that foreign selling in India was not a verdict on its economic prospects but a mechanical portfolio rebalancing forced by benchmark changes. The report explicitly states that the main driver “was nothing to do with India and everything to do with… Korea.”

This structural shift resulted in a record net foreign outflow of USD 29 billion in the first half of 2026, surpassing the already substantial USD 18.8 billion withdrawn in 2025. The selling spree subsided only in July 2026, with foreign investors turning net buyers to the tune of USD 1.8 billion, suggesting an early sign of stabilization or opportunistic re-entry. However, the sustained outflows have weighed heavily on Indian equities in dollar terms, exacerbated by an 11.1% depreciation of the Indian rupee against the US dollar over the same period. For domestic investors, however, the market has remained relatively resilient in rupee terms, underscoring the strength of local participation.

Adding to the headwinds is India’s vulnerability to imported energy costs amid geopolitical turmoil. The report points to the fallout from the US-Israel attack on Iran as a factor that has heightened energy price risks, given India’s heavy dependence on imported oil. This energy dynamic further complicates the inflation and fiscal outlook, creating an additional drag on the investment thesis for foreign investors already gravitating toward AI-centric plays.

From a strategic perspective, the Jefferies analysis presents a clear dichotomy: strong fundamental underpinnings (double-digit earnings growth, improved corporate health, and domestic liquidity) versus transient external forces (index-driven outflows and geopolitical shocks). The projection of 14% EPS growth in FY27 implies that large and mid-cap Indian companies, which account for roughly 85% of the equity universe under the MSCI India Index, are poised to capitalize on a recovering domestic economy and structural reforms. Yet, the persistent “inverse AI trade” label suggests that until global capital rotates away from concentrated tech bets, India may continue to underperform relative to AI-heavy markets like Korea and Taiwan, regardless of its own earnings momentum.