Wall Street predicts rebound in Indian markets after tough year

After one of India’s worst years of market underperformance in decades, some of Wall Street's biggest names are calling for a rebound.

- Bloomberg

Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. are among those who expect the country’s markets to claw back lost ground next year as earnings stabilize and policy support kicks in.

India’s markets have trailed across assets. Stocks have lagged peers by the widest margin in more than three decades. The rupee is Asia's worst performer. Bonds remain under pressure from heavy government debt supply. US tariffs—the harshest in the region—have hit exporters’ earnings and slowed dollar inflows, amplifying the strain.

Even so, early signs of a turn are emerging. Growth-supportive measures, combined with a pause in the long stretch of earnings downgrades, are improving sentiment. Investors are also positioning for a possible rotation out of the artificial intelligence trade, a move that could redirect foreign flows toward markets like India.

“A rebound appears increasingly likely in 2026,” said Angela Lan, senior strategist at State Street Investment Management, which has a neutral to slight overweight stance on India in its emerging market funds. “The earnings downgrade cycle is largely behind us, with recent policy measures— rate cuts and GST rationalization—filtering through consumption and credit.” MSCI Inc.'s India gauge is up 8.2% this year, trailing the broader EM benchmark by the widest gap since 1993. If some of those AI gains start to look frothy, flows could shift back toward less tech-dependent markets like India, helping narrow the gap.