After a Brutal 2025, Global Giants Bet on India’s Comeback: Is the Market Finally Ready to Fight Back?

Image takien from morpher.com

India has just endured one of its roughest stretches in decades, trailing nearly every major emerging market and watching asset after asset lose ground. Yet in a turn that has caught global investors’ attention, some of the world’s most influential financial institutions now believe that the country is setting up for a meaningful rebound.

Morgan Stanley, Citi, and Goldman Sachs are among the major houses signaling that India’s long slide may be nearing its end. Their view: earnings are stabilizing, policy support is flowing through the system, and the macro backdrop that weighed down the market for most of the year may finally be shifting.

The past twelve months have been unkind across the board. India’s equity indices lagged global peers by margins not seen in more than thirty years. The rupee sank further than any other Asian currency. The bond market struggled under the weight of heavy government borrowing. And US tariffs—some of the strictest imposed in the region—hit exporters hard, curbing dollar inflows and adding pressure to an already fragile setup.

But beneath the surface, the tone is beginning to change. A slowdown in earnings downgrades, combined with growth-oriented measures and expectations of a global reshuffling of capital away from overheated AI trades, is stirring fresh optimism. If foreign investors rotate out of high-flying AI names, India could be one of the biggest beneficiaries.

Angela Lan of State Street Investment Management believes the pieces are falling into place. She describes India as entering a more stable earnings phase—helped by rate cuts and GST changes that are beginning to filter into spending and credit growth. Her firm has moved to a neutral-to-slightly-positive stance in its emerging-market portfolios.

For now, India is still playing catch-up. MSCI’s India index has gained 8.2% this year—far below the broader emerging-market benchmark, marking the widest performance gap since 1993. But if the AI rally begins to look overstretched, strategists argue that capital could rotate back to markets with more balanced sector exposure. As CLSA’s Alexander Redman puts it, India is increasingly viewed as a “safe landing spot” if money flows out of North Asia during an AI cooldown.

Currency watchers are also growing less pessimistic. The rupee’s sharp slide—4.3% so far this year—has pushed it near levels some analysts see as a short-term bottom. ING Bank expects the currency to outperform regional peers from here, and PineBridge’s Anders Faergemann believes Indian bonds could benefit from high carry and a calmer global landscape.

That perspective isn’t far from the Reserve Bank of India’s own assessment. Governor Sanjay Malhotra recently noted that the rupee typically weakens about 3% a year—a pace some investors now consider a rough indicator of where depreciation may start to settle.

Despite the blows of 2025, the economy hasn’t buckled. Fresh data shows India expanded 8.2% in the September quarter from a year earlier, defying expectations of a much deeper slowdown. The IMF still trimmed next year’s forecast to 6.2% from 6.4%, but the broader picture remains one of resilience.

Corporate performance is also showing the first signs of life after months of downgrades. Citi analysts highlight that profits for the top 100 listed firms grew 12% in the September quarter—modestly ahead of expectations and the first period without earnings cuts. Even with all the pressure, the Nifty 50 managed to briefly break into record territory again in late November.

Still, the shift in sentiment doesn’t erase the reality of how quickly India’s advantage evaporated earlier this year. While global peers staged strong comebacks, India stumbled under the weight of slowing growth and a rupee battered by tariff-driven outflows. External headwinds still loom large: the strong dollar, weak exports, and persistent trade tensions threaten to keep recovery uneven. October’s data showed exports plunging nearly 12% from a year earlier, pushing the trade deficit to an all-time high.

Valuations also remain demanding. Even after a volatile year, the Nifty 50 trades above 20 times forward earnings—well above historical averages. Domestic investors have pumped record amounts—nearly $80 billion—into the market, helping offset foreign selling and a heavy IPO pipeline that absorbed liquidity.

This push-and-pull dynamic has left India’s market in what UBS’s Gautam Chhaochharia calls a “triangle”—a tight trading zone shaped by opposing forces. And he warns that this pattern may persist for some time.

One of the biggest stabilizers in 2025 has been the RBI. The central bank stepped in aggressively, cutting rates by 100 basis points, intervening in currency markets, and purchasing huge quantities of government debt to ease liquidity. Even so, government bonds have struggled, returning just a little over 2% this year versus nearly 8% for broader emerging-market debt.

With another policy Review expected on December 5, traders are watching whether the RBI will ramp up bond buying again. DSP Asset Managers’ Sandeep Yadav estimates that yields could fall around 25 basis points if the central bank purchases roughly ₹3 trillion of securities.

Global funds appear to be re-testing the waters. Foreign investors who pulled more than $16 billion from equities earlier this year have added about $1.7 billion over the past two months. And with allocations to India still relatively low, some money managers believe the stage is set for a bigger shift in 2026.

As Prashant Kothari of Pictet Asset Management puts it, Indian equities may finally be heading toward a recovery phase: “The tariff damage is real, but it’s not permanent—and the setup for next year looks far better than what we lived through in 2025.”