Prashant Jain sees 50% upside, says next few weeks attractive opportunity for entry

Indian equities could be approaching the end of their prolonged underperformance, creating an attractive entry point for investors willing to look beyond near-term volatility, according to Prashant Jain, one of India’s best-known fund managers.

In his September 2026 quarterly letter for 3P Investment Managers, Jain says Indian markets could deliver 40-50% returns over the next three years, with downside likely to be limited to the short term. He expects the latest episode of foreign institutional investor (FII) selling to subside by mid-December, allowing markets to absorb the pressure and begin a sustained recovery.

The next few weeks or months could therefore offer an attractive opportunity to enter the market, the letter says.

The call comes after a difficult two-year stretch for Indian equities. The Nifty fell 12.4% between September 2024 and September 2026, while foreign investors sold a net $58 billion of Indian equities over the period. Yet the economy continued to grow at about 7.5% annually in FY25 and FY26, according to the letter.

For Jain, the divergence between economic performance and stock-market returns is central to the opportunity.

Two years of underperformance have reset valuations

Indian equities have faced a combination of geopolitical conflict, tariffs, elevated gold imports, foreign direct investment repatriation and volatile oil prices. At the same time, the global artificial intelligence and semiconductor investment cycle diverted foreign capital towards markets with more direct exposure to those themes.

India, with relatively limited exposure to the AI and semiconductor supercycle, effectively became a source of funds for foreign investors seeking opportunities elsewhere. The result was a sharp relative underperformance against emerging-market peers.

The latest trigger for renewed selling was the US 10-year Treasury yield crossing the psychologically important 5% threshold. Higher US yields make dollar assets more attractive and increase the cost of capital globally, putting pressure on equity valuations.

Jain believes much of this adjustment may now be reflected in Indian share prices. The correction has brought valuations down, while India’s five-year performance relative to emerging markets has fallen to a record low, according to the letter.

The combination of lower valuations, robust domestic growth prospects, relatively low corporate leverage, sustained domestic investment flows and light foreign investor positioning makes the risk-reward equation attractive, he argues.

History favours buying after prolonged corrections

The strongest historical argument in the letter comes from an analysis of the Nifty 50 Total Return Index over the past 25 years.

3P Investment Managers examined subsequent three-year returns after every two-year rolling drawdown of 15% or more, measured at month-end. Its findings suggest that prolonged periods of market weakness have frequently been followed by substantial gains.

Of the instances examined, 10% produced three-year returns above 200%, 45% generated returns of 100-200%, and another 40% delivered returns of 50-100%. The remaining 5% generated returns of 20-50%; none produced returns below 20%.

Thus, all the instances in the study delivered positive returns of at least 20% over the following three years, while 95% generated returns of 50% or more.

The analysis does not guarantee that the current correction will produce a similar outcome. But it supports Jain’s broader argument that investors who enter after a prolonged period of underperformance can benefit when markets catch up with economic growth and earnings.

Earnings growth could provide the next leg

Valuations alone are unlikely to sustain a recovery. Earnings growth will be crucial.

Citing Kotak Institutional Equities, the letter estimates corporate profit growth for Nifty companies at 17.4% in FY27 and 14% in FY28. Nearly 70% of sectors reported earnings growth of more than 10% in the first quarter of FY27.

These projections suggest that corporate earnings could provide a fundamental underpinning to a market recovery, provided growth expectations hold.

Domestic liquidity has also helped cushion the impact of foreign selling. Primary-market activity has tended to decline during periods of falling markets or FII outflows, reducing the supply of new equity. Along with sustained domestic flows, this has helped Indian markets absorb substantial foreign selling without a proportionate increase in volatility.

A further source of support is India’s external position. The letter points to foreign exchange reserves of about $700 billion, contained current-account and fiscal deficits, and $136 billion mobilised through FCNR(B) deposits and external commercial borrowings at fixed rates for three to five years.

The recovery of oil flows through the Strait of Hormuz to around 90% of pre-war levels could also ease pressure on energy markets if it persists.

Large caps offer a better risk-reward equation

Although Jain sees opportunities across the market, he believes large caps are more attractive as a category. Mid- and small-cap stocks offer stock-picking opportunities, but large caps provide better downside protection if US yields rise materially further.

The distinction is important because the bullish outlook depends on the assumption that the bulk of the increase in US Treasury yields is behind the market. A further sharp rise could delay the recovery and weaken returns.

For now, Jain believes the combination of a valuation reset, resilient growth, improving earnings and foreign investor under-ownership creates an attractive entry point.

His call is not that markets cannot fall further. It is that after two years of underperformance, investors may not need to wait for the outlook to turn unambiguously positive before positioning for the next three-year cycle.