Major Wall Street firms, including Morgan Stanley, Citigroup, and Goldman Sachs Group Inc., are forecasting a robust recovery for Indian markets by 2026, following a challenging year of underperformance relative to global peers. The MSCI India index has only increased by 8.2% this year, marking the largest gap from emerging market benchmarks since 1993. This anticipated shift comes as investors consider reallocating capital from overhyped artificial intelligence stocks to underperforming markets like India, where recent signs indicate stabilization in earnings and supportive policy measures.
The Indian stock market faced significant challenges throughout 2025, largely due to foreign investors withdrawing funds in favor of markets that benefit from the global AI surge, notably in South Korea, Taiwan, China, and the United States. As a result, the Indian rupee fell by 4.3%, making it Asia’s worst-performing currency, while rising government debt pressured bond markets. Nevertheless, GDP growth surged to 8.2% in the September quarter, and profit growth among the top 100 companies hit 12%, effectively halting earnings downgrades.
Analysts, such as Angela Lan from State Street Investment Management, view a rebound as increasingly likely, driven by anticipated rate cuts, reforms to the Goods and Services Tax (GST) that could spur consumption, and an uptick in credit growth. ING Bank NV points to the potential for a recovery of the rupee, while PineBridge Investments emphasizes the attractiveness of bonds given a stable global backdrop. A cooling of the AI frenzy could facilitate a reversal of capital outflows, thereby boosting Indian equities and the national currency.
The evolving landscape suggests that while immediate challenges persist, the foundation is being laid for a potential resurgence in Indian markets. As international investors reassess their portfolios, India’s fundamentals, including strong corporate earnings and growth prospects, may increasingly come into focus.
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