Jefferies’ Chris Wood sees fresh US-Iran tensions as biggest risk to India, sees this sector as the best hedge

Long-term India bull Christopher Wood, Global Head of Equity Strategy at Jefferies, continues to remain bullish on the Indian stock market, but sees renewed hostilities in the Middle East as the biggest risk to India, both from a relative and absolute return standpoint.

In his latest GREED & Fear report, Chris Wood said that the AI thematic investment standpoint has peaked, leading to a growing desire to look at non-artificial intelligence trades on the part of portfolio managers. But in emerging markets, the obvious market to benefit from the reverse AI trade has been India, most particularly with the recent disappointing election result in Brazil, he said.

Chris Wood on FII return

This is why it is no surprise to Wood that foreign investors have turned net buyers of Indian equities in the past three weeks, after a massive selloff at the beginning of 2025. The other point that the ace investor pointed out is India’s attractive valuations, relative to history, which remains comparatively modest while the cyclical recovery in the economy this year has been better than expected.

The Nifty index and the Nifty MidCap 100 index are now trading at 18x and 23x one-year forward earnings respectively. Most importantly, there is accumulating evidence that a long anticipated private-sector capex cycle is finally happening, with the best chart supporting this view of the rising trend in the imports of machinery goods. They have more than doubled from $29 billion in FY21 to $62 billion in FY26.

Chris Wood on India’s strong domestic flows

Wood pointed out that the Indian stock market remains supported by extraordinarily resilient domestic equity mutual fund inflows. These inflows totaled Rs 350 billion in October this year and Rs 3.9 trillion in the first ten months of 2026, or an average of $4.1 billion per month.

In this respect, India remains the most dynamic capital market in the world after the US, though directional terms for the benchmark indices have been capped by rising equity insuance to absorb these inflows.

Iran war escalations biggest risk to Indian market

Chris Wood said the international brokerage heard from a usually reliable source at the start of this week that Iran has agreed to re-open the Strait of Hormuz if it receives $8 billion of its frozen assets in an initial downpayment and if the US ends its blockade which has been in place since mid-April.Meanwhile, Donald Trump said this week that “Iran militarily is effectively over” and that renewed US strikes are “highly unlikely”. However, the hopes of any peace deal still remain elusive. US Secretary of State Marco Rubio’s comments in France at the G7 foreign ministers meeting suggests he favours a policy of intensifying economic pressure on Iran via the blockade. As for Iran the question is whether it decides to turn pre-emptive.

Which sector does Chris Wood see as the best hedge to renewed geopolitical tensions?

In this background, Jefferies will maintain energy stocks in the portfolios since they are the only way to hedge renewed geopolitical tensions. This is another way of advising investors who do not own energy stocks to take advantage of the recent sharp decline to buy them.

“For such reasons GREED & fear will maintain energy stocks in the various GREED & fear portfolios as the only practical hedge available,” Wood wrote in his report.

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