India – A Bridge to Global Change

India’s underperformance in 2026 creates an increasingly attractive entry point because domestic fundamentals are improving while the market is less exposed to the AI-driven earnings cycle.

• India has lagged as global markets favoured semiconductors, AI infrastructure and higher-yielding assets; AI-related themes represent around 14.5% of the Indian market, versus more than 80% in Taiwan and close to three quarters in Korea.
• Foreign selling contributed to eight consecutive weeks of relative underperformance, the longest stretch in roughly 25 years, even as domestic investors continued to support the market.
• Domestic momentum remains strong: real GDP grew 7.8% year-on-year in 1QFY27, while NIFTY 500 profit growth recovered from -5.2% in 2QFY26 to 11.4% in 1QFY27.
• External resilience has improved, with the current-account deficit estimated at around 1.6% of GDP even at an oil price of USD95 per barrel; fiscal consolidation, corporate deleveraging and stronger foreign-currency inflows provide additional buffers.
• India’s oil intensity has fallen from around 0.20 barrels per INR 10,000 of GDP in the late 1990s to approximately 0.116 today, while household gold holdings are estimated at USD3.9 trillion and organised gold loans at around USD197 billion.
• Valuations have become more supportive: India’s price-to-book ratio is below its own 10-year average and its relative valuation versus emerging markets is at its lowest level in roughly two decades.

Takeaway: Investors should consider India as a diversified emerging-market opportunity whose improving earnings, macroeconomic resilience and lower relative valuations could become more valuable if the exceptionally concentrated AI-led earnings cycle moderates, although valuation indicators are not precise timing signals.