Indian equities are positioned for significant outperformance against Emerging Asia and emerging market regions, according to Helios India managing director Dinshaw Irani. As reported by Business Standard, since September 2024, India has consistently underperformed these regions by over 60% due to lack of earnings growth. However, this trend reversed from September 2025 quarter onwards, with June 2026 marking the first month when India outperformed Emerging Asia and EM regions, a momentum that has continued into July 2026. Recent analysis from Abakkus Investment Managers confirms this trend, noting that India has consistently underperformed global markets over the past year, with the Nifty 50 TRI delivering a negative 0.4% one-year return as of June 30, compared to South Korea's Kospi at 103.2%, Taiwan's TAIEX at 83.2%, Japan's Nikkei at 56.7%, and US Nasdaq at 20.1%.
The earnings growth recovery has been sustained since the September 2025 quarter, providing the foundation for India's improved market performance. According to Helios India's analysis, this earnings revival has been instrumental in India's recent outperformance trajectory against regional peers. The sustained nature of this earnings growth has been crucial in reversing the previous underperformance trend that had persisted for over a year, as confirmed by Abakkus Investment Managers who attribute India's recent outperformance to this earnings recovery.
Indian equities have faced significant headwinds from global capital reallocation toward AI-linked markets, with Abakkus Investment Managers identifying this as a key factor in India's underperformance. Aman Chowhan, Head of Equities - Alternates at Abakkus Investment Managers, explained that global investors have shifted capital toward AI, semiconductor and data centre-linked opportunities in the US, Taiwan and South Korea. India's limited exposure to semiconductor manufacturing and AI hardware has contributed to this underperformance, while concerns over AI-led disruption have weighed on large Indian IT services companies. Foreign institutional investors (FIIs) have reduced exposure due to global capital reallocation, geopolitical uncertainty, tariff concerns and rupee depreciation, with large-cap stocks witnessing valuation compression despite healthy underlying businesses.
Despite current challenges, India's market structure and long-term fundamentals remain compelling according to Abakkus Investment Managers. India's sector composition is more evenly distributed, reducing dependence on any single sector and supporting diversified market exposure, unlike the MSCI Emerging Markets Index which remains heavily tilted toward Information Technology. Strong domestic inflows through mutual funds and SIPs have continued to support the mid-cap and small-cap segments, which have significantly outperformed despite large-cap weakness. Abakkus believes India's structural growth drivers remain intact, including strong domestic demand, favourable demographics, infrastructure creation and economic formalization. The firm notes that while AI-linked semiconductor and storage companies have driven exceptional global gains, India remains outside the core AI manufacturing ecosystem, potentially benefiting as global capital rotates beyond these markets.
The Indian IT sector faces significant headwinds from artificial intelligence adoption, with Helios India advising investors to avoid the IT pack. As reported by Business Standard, Irani stated that with AI adoption, IT services companies' revenue models will have to undergo a reset, potentially impacting their earnings growth potential. This represents a fundamental shift in the traditional IT services business model that investors should consider before entering the sector, aligning with Abakkus observations that concerns over AI-led disruption have weighed on large Indian IT services companies.
