After worst year since 1994, Wall Street predicts turnaround in Indian markets
India delivered its weakest relative performance in more than three decades in 2025, but firms including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. are now projecting a recovery
- Nov 30, 2025,
- Updated Nov 30, 2025 7:42 AM IST
After one of India's worst years of market underperformance in decades, Wall Street's biggest houses now see a turnaround taking shape heading into 2026, Bloomberg reported on Sunday. India delivered its weakest relative performance in more than three decades in 2025, but firms including Morgan Stanley, Citigroup Inc, and Goldman Sachs Group Inc are now calling time on the slump and projecting a recovery.
India's underperformance has been deep and broad. Stocks have trailed emerging-market peers by the widest margin since 1993. The rupee has slumped into Asia's worst-performing currency.
Bonds have stayed under pressure from heavy government debt supply. Tariffs imposed by US President Donald Trump - the harshest in the region - have damaged exporters' earnings and slowed dollar inflows, creating additional strain.
Even against that backdrop, early signals of a turn are appearing. Growth-supportive measures and a halt to months of earnings downgrades have lifted sentiment. Funds are also positioning for a potential rotation out of the overheated artificial intelligence trade, a shift that could redirect foreign capital to markets like India.
"A rebound appears increasingly likely in 2026," said Angela Lan, senior strategist at State Street Investment Management, which holds a neutral to slight overweight stance on India in its emerging-market funds. "The earnings downgrade cycle is largely behind us, with recent policy measures - rate cuts and GST rationalization - filtering through consumption and credit."
MSCI Inc.'s India gauge is up 8.2% this year, still trailing the broader EM benchmark by the widest gap since 1993. If AI-linked gains begin looking stretched, analysts expect that flows could rotate into markets less dependent on technology, pushing India up the ranks again, the report said.
The rupee's slide - down 4.3% this year after touching a record low in November - may also be nearing exhaustion. ING Bank NV described it as the regional currency with the most rebound potential.
Reserve Bank of India Governor Sanjay Malhotra earlier said the rupee typically weakens "about 3%–3.5% a year" — a range several investors view as a guide for when losses may begin levelling out.
Despite the shocks of 2025, India's economy has delivered more resilience than markets did. GDP expanded 8.2% in the September quarter from a year earlier.
Corporate earnings are also showing their first signs of healing. Citi analysts told Bloomberg that profits for the top 100 firms rose 12% in the September quarter, slightly above expectations and the first period in several quarters without an estimate cut. The benchmark Nifty 50 Index briefly hit a record on November 20.
While several peers surged in 2025, India faltered as growth cooled and Trump's tariff measures crushed the rupee and disrupted a long equity rally. More headwinds remain: a stronger dollar, prolonged trade tensions and a sharp dip in exports — down nearly 12% in October — that pushed the trade deficit to an all-time high.
Domestic valuations, though eased from their peaks, remain elevated. The Nifty 50 trades above 20 times forward earnings, well over its long-term mean.
The RBI has carried much of the policy load in 2025 - cutting rates by 100 basis points, defending the rupee aggressively and purchasing record quantities of government securities to ease liquidity. Yet sovereign bonds have lagged, returning 2.1% versus an 8% gain for broader emerging-market debt, constrained by a weaker rupee and doubts that the rate-cut cycle has much further to run.
With the RBI Governor hinting at another rate cut on December 5, traders are now watching for renewed large-scale bond purchases. Yields could fall about 25 basis points from current levels if the central bank were to buy Rs 3 trillion of securities, DSP Asset Managers Pvt.'s head of fixed income Sandeep Yadav told Bloomberg.
Some of that stabilisation is already feeding back into flows. Global funds that withdrew more than $16 billion earlier in the year have returned with $1.7 billion in inflows over the last two months. With emerging-market portfolios still heavily underweight India, analysts see room for a larger reversal if conditions continue to improve.
"With better prospects for Indian equities in 2026, we believe there is a fair chance of a reversal of the outflows," said Prashant Kothari, senior investment manager at Pictet Asset Management. "Tariff impact is manageable - and hopefully temporary."
Earlier this month, analysts at Morgan Stanley sharpened their outlook, predicting that the Sensex may hit 107,000 by December 2026 in a bull-case scenario. This is an upgrade from their earlier projection that the index would reach 100,000 by June 2026, a scenario they assigned a 30% probability. They now place 50% probability on their base-case of 95,000 by December 2026.
Morgan Stanley added that India is closing 2025 with its worst relative performance versus emerging markets since 1994, and that valuations have "corrected meaningfully" and "possibly troughed in October 2025".
After one of India's worst years of market underperformance in decades, Wall Street's biggest houses now see a turnaround taking shape heading into 2026, Bloomberg reported on Sunday. India delivered its weakest relative performance in more than three decades in 2025, but firms including Morgan Stanley, Citigroup Inc, and Goldman Sachs Group Inc are now calling time on the slump and projecting a recovery.
India's underperformance has been deep and broad. Stocks have trailed emerging-market peers by the widest margin since 1993. The rupee has slumped into Asia's worst-performing currency.
Bonds have stayed under pressure from heavy government debt supply. Tariffs imposed by US President Donald Trump - the harshest in the region - have damaged exporters' earnings and slowed dollar inflows, creating additional strain.
Even against that backdrop, early signals of a turn are appearing. Growth-supportive measures and a halt to months of earnings downgrades have lifted sentiment. Funds are also positioning for a potential rotation out of the overheated artificial intelligence trade, a shift that could redirect foreign capital to markets like India.
"A rebound appears increasingly likely in 2026," said Angela Lan, senior strategist at State Street Investment Management, which holds a neutral to slight overweight stance on India in its emerging-market funds. "The earnings downgrade cycle is largely behind us, with recent policy measures - rate cuts and GST rationalization - filtering through consumption and credit."
MSCI Inc.'s India gauge is up 8.2% this year, still trailing the broader EM benchmark by the widest gap since 1993. If AI-linked gains begin looking stretched, analysts expect that flows could rotate into markets less dependent on technology, pushing India up the ranks again, the report said.
The rupee's slide - down 4.3% this year after touching a record low in November - may also be nearing exhaustion. ING Bank NV described it as the regional currency with the most rebound potential.
Reserve Bank of India Governor Sanjay Malhotra earlier said the rupee typically weakens "about 3%–3.5% a year" — a range several investors view as a guide for when losses may begin levelling out.
Despite the shocks of 2025, India's economy has delivered more resilience than markets did. GDP expanded 8.2% in the September quarter from a year earlier.
Corporate earnings are also showing their first signs of healing. Citi analysts told Bloomberg that profits for the top 100 firms rose 12% in the September quarter, slightly above expectations and the first period in several quarters without an estimate cut. The benchmark Nifty 50 Index briefly hit a record on November 20.
While several peers surged in 2025, India faltered as growth cooled and Trump's tariff measures crushed the rupee and disrupted a long equity rally. More headwinds remain: a stronger dollar, prolonged trade tensions and a sharp dip in exports — down nearly 12% in October — that pushed the trade deficit to an all-time high.
Domestic valuations, though eased from their peaks, remain elevated. The Nifty 50 trades above 20 times forward earnings, well over its long-term mean.
The RBI has carried much of the policy load in 2025 - cutting rates by 100 basis points, defending the rupee aggressively and purchasing record quantities of government securities to ease liquidity. Yet sovereign bonds have lagged, returning 2.1% versus an 8% gain for broader emerging-market debt, constrained by a weaker rupee and doubts that the rate-cut cycle has much further to run.
With the RBI Governor hinting at another rate cut on December 5, traders are now watching for renewed large-scale bond purchases. Yields could fall about 25 basis points from current levels if the central bank were to buy Rs 3 trillion of securities, DSP Asset Managers Pvt.'s head of fixed income Sandeep Yadav told Bloomberg.
Some of that stabilisation is already feeding back into flows. Global funds that withdrew more than $16 billion earlier in the year have returned with $1.7 billion in inflows over the last two months. With emerging-market portfolios still heavily underweight India, analysts see room for a larger reversal if conditions continue to improve.
"With better prospects for Indian equities in 2026, we believe there is a fair chance of a reversal of the outflows," said Prashant Kothari, senior investment manager at Pictet Asset Management. "Tariff impact is manageable - and hopefully temporary."
Earlier this month, analysts at Morgan Stanley sharpened their outlook, predicting that the Sensex may hit 107,000 by December 2026 in a bull-case scenario. This is an upgrade from their earlier projection that the index would reach 100,000 by June 2026, a scenario they assigned a 30% probability. They now place 50% probability on their base-case of 95,000 by December 2026.
Morgan Stanley added that India is closing 2025 with its worst relative performance versus emerging markets since 1994, and that valuations have "corrected meaningfully" and "possibly troughed in October 2025".