Indian Stocks: EM Investors’ Biggest Underweight
As of August 21, 2025, Indian stocks have become the most underweighted market among emerging markets (EM) investors, according to Nomura Holdings Inc. This shift is attributed to a significant rotation towards Asian peers such as Taiwan, Hong Kong/China, and South Korea. By the end of July, 71% of EM funds were underweight on India, up from 60% at the end of June. This trend is supported by a Bank of America Corp. survey, which highlighted India’s transition from the top Asian pick to the least preferred in just three months.
The underperformance of Indian equities is exacerbated by the US increasing tariffs on India due to its purchases of Russian oil. This development weakens the argument for India’s domestically driven economy as a safe haven during global volatility. Additionally, Indian equities have been impacted by slowing earnings growth and high valuations. Consequently, overseas investors have net sold $12.7 billion worth of Indian stocks this year. The MSCI India Index has lagged the EM equities benchmark by nearly 15 percentage points in dollar terms, marking its largest annual underperformance since 2011.
India’s Underperformance in Emerging Markets
India’s equities have underperformed their emerging market peers for 12 months, as noted by international brokerage Jefferies. The MSCI India (in USD) has underperformed the MSCI Emerging Markets by 18 percentage points since mid-April and by 24 percentage points over the past 12 months. Despite this, analysts remain optimistic about a potential turnaround. Factors contributing to this optimism include Goods and Services Tax (GST) rationalization, a ratings upgrade, and expectations of rising consumption.
Recent policy initiatives on the GST front and indications of next-generation reforms have significantly improved market sentiments. In the previous session, benchmark indices Nifty 50 and Sensex surged over one percent each. However, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that while market sentiment has improved, the fundamentals, particularly earnings growth, will take time to respond.
Global Market Context
As of August 18, 2025, the global markets watchlist by ETF Trends includes nine prominent indexes from various economies. While all nine indexes have posted gains, India’s BSE SENSEX has shown the smallest year-to-date gain at 1.7%. In contrast, Hong Kong’s Hang Seng leads with a 28.3% gain, followed by Germany’s DAXK at 18.4% and China’s Shanghai at 14.3%.
The MSCI India Index closed at 2960.05 on August 19, 2025, with a 52-week high of 3167.29 on September 26, 2024, and a 52-week low of 2529.3 on April 6, 2025. The index’s performance reflects broader challenges faced by Indian equities in the current global economic environment.