The global investor sentiment towards India is showing a clear shift. After months of underperformance and caution on the Indian stock market, major global brokerages like Goldman Sachs and HSBC have upgraded the Indian stock market outlook, signalling that Dalal Street might be entering a more constructive phase.
Signs of earnings revival, easing valuation concerns, and possible return of foreign portfolio investors (FPIs) to India are some of the triggers that have sparked a turnaround in sentiment, with the domestic investor inflows and government reforms offering support.
Goldman Sachs, earlier in November, reversed its October 2024 downgrade, as it raised its rating for the Indian stock market to “overweight” from “neutral”. Its rationale? Earnings growth and policy tailwinds would support growth.
Similarly, in September this year, HSBC had upgraded its stance on Indian equities from “neutral” to “Overweight”, citing improved valuations, supportive government policies, and resilient domestic investor flows.
Latest to join the bullish call on India was Morgan Stanley, which believes that India is set to reverse its historic underperformance versus emerging market peers.
This raises an important question: Is a market turnaround underway?
Bulls Set to Return to D-Street?
Plagued by various factors such as US tariff impact, slowdown in earnings and persistent FPI selloff, Sensex has risen less than 9% in 2025 so far. According to an analysis by Morgan Stanley, India is lagging its EM peers by the widest margin since 1993.
Another major reason for India’s underperformance has been attributed to the lack of artificial intelligence shares, which have otherwise powered a massive rally across Asian and EMs this year, like China, South Korea, Taiwan and Hong Kong, among others.
“The momentum in the AI trade led to many FIIs selling in India and moving the money for the AI trade. Now the AI trade is weakening and this bodes well for India,” opined Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
More importantly, he said, earnings are picking up. “The confluence of these two factors- fading AI trade and improving corporate earnings- can trigger a rally. A fair India-US trade deal can be another bullish trigger,” added Vijayakumar.
According to Morgan Stanley, India Inc. is set for a positive growth surprise in the coming months. It projected a 17% compound annual growth rate on Sensex earnings annually through the fiscal year ending in March 2028.
The recent valuation reset has also helped reduce downside risks, making the market more balanced than it was a few quarters ago, according to analysts.
“2026 has the potential to be a turning point for Indian equities after a prolonged phase of consolidation. Several indicators point to a more supportive backdrop: Valuations have become relatively reasonable, the capex cycle is gradually strengthening, and policy reforms from recent years are beginning to show clearer on-ground impact on some of the sectors,” said Raj Gaikar, Research Analyst, SAMCO Securities.
Moreover, a turn in domestic growth dynamics should aid FPI inflows as valuations have turned less expensive and the outlook for USD (DXY Index) remains benign, said Elara Capital. It expects FPIs to return to Dalal Street by Q1 of 2026.
So far in 2025, FPI outflows reached ₹147,383 crore, creating a significant overhang on the Indian stock market despite record domestic inflows.
Earlier this year, we had a situation of ‘good macros, but poor micros’. This is now changing to ‘good macros and improving micros’, said Vijayakumar. Against this backdrop, he feels that the worst is over for the market.
“It would be difficult to predict the inflexion point for a rally. But indications are that we are near that.”
Can India also gain prominence vs EM peers?
Gaikar believes that as conditions for a reversal are gradually improving, India might soon gain its clout back in the EM basket.
“Much of the recent lag came from rich valuations and steady foreign outflows as investors shifted toward cheaper markets. For India to regain relative strength, three factors will be key. First, clearer progress in the domestic investment cycle, supported by ongoing reforms and stable macro policies, can improve confidence. Second, foreign investor participation may recover as valuation gaps narrow and liquidity conditions turn more supportive. Third, steadier global growth and a softer interest-rate environment would help reduce risk aversion toward higher-valuation markets like India,” said Gaikar.
He believes that amid firm policy execution and return of FPIs, India has a reasonable chance of reversing its multi-decade relative underperformance in the coming periods.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
