A clear derating

Markets risk underperformance if we don’t regain our growth credentials

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If we look at data from January 1, 2025, to the end of February 2026, 14 months of heightened global volatility, we see some interesting trends. This period is before the Iran war and thus not affected by recent developments. Looking at exchange-traded funds as the barometer of individual market returns, we see that this has been a time of strong financial returns. Emerging market (EM) equities were up 51.4 percent, international equities were up by 47 per cent, the United States rose by 18.4 per cent, and total world equity returns were 28.3 per cent.

In contrast, over this same 14 months period, India was down 0.7 per cent, the second-worst performing market in the world, with only Saudi Arabia performing worse. In fact, India and Saudi Arabia are the only two markets that are actually down (all returns in US dollar). This is when Korea has tripled, Brazil is up 80 percent, and Taiwan has risen by more than 50 percent.

We have underperformed the EM benchmark by 5,000 basis points in just 14 months. Being overweight India has been a career finishing move! In this context, one can understand why nearly every foreign fund is currently underweight the country.

Absolute foreign ownership of the Indian market is at a 15-year low, and we see foreign portfolio investors (FPIs) selling on a daily basis. India has received zero net foreign flows over the last five years, a very long time indeed. What are some lessons from this period of unprecedented Indian underperformance?