The World Equity Index surged by an impressive 4.4% in the last month and a robust 14% over the past three months. The Nasdaq led the charge, posting a remarkable 19.5% gain during the same period.
This rally reflects a broad-based “risk-on” sentiment among global investors, fuelled by improving liquidity conditions and a benign interest rate environment.
In contrast, Indian large-cap equities have underperformed, declining 1.4% over the past month and registering a modest 3% gain in the last three months.
However, Indian small-cap stocks have shown resilience, rising 13% in the past three months, in line with the global risk-on trend. This divergence between large and small caps highlights nuanced investor sentiment within the Indian market.
ETMarkets.comThis rally appears largely driven by a globally benign interest rate scenario and an equity liquidity inrush. A global slowdown—due to political unrest (which is now resolving) and former U.S. President Donald Trump’s tariff policies—has moderated net U.S. imports to almost half of what they were in January and February 2025, now standing at US$71 billion.
Global GDP has moderated downward to 3%, while U.S. inflation has risen to 3% for 2026.
Case for going long on India?
India, in contrast, has demonstrated economic resilience, supported by:
- Stable and growing forex reserves
- Falling fiscal deficit and stable current account deficit
- A banking system flush with liquidity
- Benign inflation levels
All these factors are aiding strong GDP growth in the 6–7% range.
A weaker global crude oil environment and early monsoons are providing additional tailwinds for the Indian economy.
Technically, FII flows appear to have reversed with a fall in the U.S. Dollar Index (DXY) of more than 10%, making the rupee more attractive than the dollar.
After US$28.7 billion in net outflows between October 2024 and March 2025, FIIs have returned with US$3.8 billion in inflows in this financial year. With FII ownership at a decade-low of ~16%, there is significant room for further upside.
ETMarkets.comChallenges to the Indian market which has led to its underperformance are
- Slowing Consumption
Retail consumption growth has slowed from 28–29% in mid-2024 to ~9% as of May 2025. This raises concerns about demand sustainability and credit quality. To counter this, the government has announced tax cuts of 3–5% for middle-income earners (Rs 15–25 lakh), expected to boost disposable income and revive consumer spending by Q3FY26. - Valuation Concerns
Markets are trading near peak valuations. The large-cap index trades at a five-year forward P/E of 20x, while mid-caps and small-caps are at premiums of 30% and 15%, respectively. These elevated valuations may prompt investors to adopt a more selective and tactical approach to equity allocation. - Indian Opportunities Ahead
Investors may focus on sectors and themes offering structural growth and reasonable valuations:- Finsumption: The housing finance sector is likely to benefit from increased budget allocations and a falling interest rate environment. Indian capital market players stand to gain from enhanced liquidity and credit growth.
- Capex-Linked Sectors: Capital goods and infrastructure sectors may benefit from government spending, which has increased seven-fold in the past 11 years.
- Home-Bias Manufacturing & ‘Make in India’ Themes: Pharmaceuticals and specialty chemicals present long-term growth potential driven by domestic demand and export opportunities. The India–UK FTA on textiles also opens up opportunities for export-focused companies.
The Indian consumption story has slowed, and bottom-up stock picking could be more effective in the current environment.
(The author is CIO and Head – Equity Advisory, ASK Private Wealth)
Analyst Disclaimer: The information and opinions expressed above do not constitute investment advice. Please consult a SEBI-registered intermediary before making investment-related decisions. These views are personal and may differ from those of other ASK Asset and Wealth Management authors.
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