Emerging Markets delivered a remarkable 33.6% total return in 2025, significantly outperforming both the S&P 500 at 17.9% and the MSCI World Index at 21.6%. According to The Economic Times, this marked the strongest outperformance of Emerging Markets over US equities in nearly two decades, signalling that global capital may once again be broadening its horizons after over a decade of focusing primarily on American markets.
India notably did not participate meaningfully in the broader Emerging Market rally, with the MSCI India Index delivering returns of only around 4% in US dollar terms. As reported by The Economic Times, this underperformance was weighed down by currency weakness, slower earnings growth, tariff-related pressures, and relatively higher domestic interest rates. Foreign investors withdrew nearly USD 35 billion over the last 24 months, bringing foreign ownership in Indian equities to a 15-year low of around 16%.
Multiple structural developments are positioning India for a potential rebound in 2026. According to The Economic Times, India's sovereign rating upgrade from BBB- to BBB in August 2025 widens the universe of global fixed income investors who can allocate to India. The rapid expansion of Global Capability Centres employing nearly two million professionals across over 1,800 centres strengthens India's position in the global services value chain. Additionally, retail participation in financial markets has transformed with demat accounts rising to 22.5 crore by March 2026, compared with around 4 crore in 2020.
India enters this recovery period with strengthened domestic macro fundamentals and multiple support mechanisms. As reported by The Economic Times, private final consumption expenditure grew 7.7% in FY26 and accounts for nearly 56.7% of GDP, providing internal demand resilience. Fiscal measures including income tax adjustments, GST rationalisation, and the rollout of the 8th Pay Commission are expected to support household consumption. The India-EU trade agreement covering over 90% of goods announced in January 2026, with implementation expected by early 2027, further strengthens trade integration.
The market correction and consolidation witnessed in 2025 have helped moderate valuations, making India increasingly a reasonably valued growth market with improving earnings visibility. According to The Economic Times, this evolution from being seen as an expensive structural story to a more reasonably valued growth market with multiple catalysts already in place suggests that the triggers for recovery may already have arrived, with the market potentially not having fully priced in these developments yet.
