In a striking twist of fate, the Indian equity market, once considered a haven of stability in the global landscape, has plummeted to the lowest ranks among major international indices. The benchmark Sensex has managed a mere 1.9% return in US dollar terms so far this year, placing it at the bottom of the performance league among 17 prominent global indices. This comes in stark contrast to other markets, with South Korea’s KOSPI soaring 53.5% and Germany’s DAX witnessing a 36% surge in 2025.
Additional analysis reveals that Japan’s Nikkei has surged by 22.5% in dollar terms, and China’s Shanghai Composite has recorded a 21.4% rise, while Brazil’s Bovespa has noticeably accelerated with a gain of 38.5%. Against this backdrop of robust growth, India’s narrative as a rapidly growing economy appears to be unraveling, particularly in light of four consecutive quarters of muted earnings growth.
Investigations into the year-to-date performance indicate that the Nifty 50, though slightly better with a 3.2% return, still ranks poorly, only outpacing Thailand’s SET index, which stands at 2.8%. The valuation landscape further complicates matters; India currently trades at elevated forward multiples of 19.3 times, starkly outpacing other emerging markets such as Korea (10.4x), Brazil (8.3x), China’s Shanghai (13.5x), and Hong Kong’s Hang Seng (11.3x), thus presenting a less attractive entry point for foreign investors.
Market experts highlight the deceleration in earnings growth, commencing from the September quarter, as a primary factor for this underperformance. According to Sunny Agrawal, Head of Fundamental Research at SBI Securities, the fiscal year 2026 is projected to reflect single-digit earnings growth, with a more promising recovery to 12-14% anticipated in fiscal year 2027.
Foreign institutional investors (FIIs) have significantly withdrawn their capital from the Indian market, having pulled out around Rs 1.4 lakh crore this year alone. Key reasons for this trend include the more favorable performances of developed markets and concerns about currency depreciation, which have prompted FIIs to reallocate investments to regions that promise higher returns. The Indian rupee’s weakening against major global currencies has only intensified this shift in capital flows.
Compounding these financial challenges, political uncertainty has exacerbated market sentiment. Analysts point to government policy shifts and a noted slowdown in capital expenditures as contributors to the market’s malaise. The narrow trading range, with indices fluctuating mostly between 24,000 and 25,000, reflects a period of consolidation that reveals an overall lack of investor enthusiasm.
Nevertheless, some analysts see glimmers of hope for a potential recovery. Neeraj Chadawar from Axis Securities suggests that the current year is more likely a consolidation phase awaiting a resurgence in earnings growth. He anticipates the upcoming Q2 earnings season may mirror Q1, while meaningful market movement could be expected in the latter half of the fiscal year.
Moreover, policy adjustments such as recent GST rate cuts and projected monetary easing provide additional optimism. There is growing speculation about forthcoming policy measures that could inject liquidity into the economy, potentially paving the way for lower interest rates. Analysts believe that by the third quarter of fiscal year 2026, the benefits of fiscal and monetary reforms could begin to reflect positively in corporate earnings, encouraging FIIs to revive their interest in the market.
While defensive investment strategies have currently taken precedence due to the subdued earnings environment and high valuations, experts suggest that strategic value-oriented investments might yield better results. The future trajectory of the Indian equity market hinges on two critical upcoming events: successful tariff negotiations that align with market expectations and the anticipated impact of fiscal and monetary support translating into enhanced economic momentum and earnings growth.
Despite possessing strong macroeconomic fundamentals, exemplified by GDP growth exceeding 7.5% and inflation remaining stable around 2%, the Indian equity markets find themselves ensnared in a mismatch between valuations and earnings. Whether the anticipated second-half revival comes to fruition will ultimately determine if India can reclaim its position in the global market or remain ensnared at the bottom of the performance hierarchy.
