In a surprising turn for 2025, Indian equities have trailed other emerging markets, marking the first instance of such underperformance since 2020. While markets have rebounded sharply since mid-April, the broader picture remains subdued when compared to peer nations.
So far this year, the MSCI India index has climbed just 2.33%, significantly behind the 9% gain recorded by the MSCI Emerging Markets index. This divergence is being closely watched by investors, especially given India’s consistent outperformance in recent years.
April Recovery Fails to Close the Gap
The underperformance comes despite a notable recovery in Indian markets over the past several weeks. Since mid-April, the MSCI India index surged over 11%, slightly outperforming the MSCI Emerging Markets index, which gained nearly 10% during the same period.
The rebound was largely triggered by U.S. President Donald Trump’s decision to pause tariffs for several countries, improving global sentiment and boosting investor confidence across key markets, including India.
Key Concerns: Valuations and Economic Momentum
While recent gains have helped narrow the performance gap, elevated valuations and concerns about a slowing Indian economy continue to weigh on investor sentiment. These headwinds have made investors more cautious, especially as other emerging markets offer more attractive entry points and growth narratives.
This year marks India’s first relative underperformance in six years, a notable shift for a market that had consistently delivered strong returns even during periods of global volatility.
Market Outlook
Although the short-term momentum in Indian markets is encouraging, sustained outperformance will depend on macroeconomic clarity, earnings growth, and global risk appetite. Investors are keeping a close eye on domestic policy signals and global market developments to assess the next leg of the rally.
