India Faces Sharp Underperformance in Global Markets; Foreign Outflows Hit $28 Billion

India’s equity market has turned into one of the worst performers in Asia this year, sharply lagging behind regional peers. In USD terms, Indian equities are up only 1% year-to-date (YTD), compared to a robust 21% gain in MXAPJ (Asia Pacific ex-Japan index) and 22% in emerging markets (EM). Analysts highlight that India’s YTD underperformance of 20 percentage points versus MXAPJ is the weakest in three decades.

Record Foreign Selling Pressure

Foreign institutional investors (FIIs) have sold nearly $28 billion worth of Indian equities since the market peak in September 2024. This marks the largest foreign outflow among emerging markets in the past year, significantly weighing on domestic market sentiment.

India vs. China Performance Gap Widens

The underperformance becomes more evident when compared with China. Since September 2024, India has underperformed China by 65 percentage points. India’s valuation premium over China has now slipped to a three-year low at 70%, moving closer to its 15-year average.

This narrowing premium reflects a shift in investor sentiment, as the allocation gap between India and China in active EM/Asia funds has shrunk to historical lows.

Outlook

Market strategists note that India’s long-term fundamentals remain intact, but persistent foreign selling and high valuations compared to peers are creating short-term challenges. With the valuation premium adjusting and investor exposure balancing out, the coming months will be critical in determining whether India can reverse this trend of underperformance.