The Indian stock market often moves in cycles of relative outperformance and underperformance compared to global peers like the US, China, and the broader emerging market basket. Understanding these cycles is crucial for investors who want to avoid short-term noise and focus on long-term wealth creation.
India vs US: Cyclical Patterns in Performance
When we compare the Nifty 500 with the S&P 500, a repeating pattern emerges.
- India goes through underperformance cycles lasting 4–12 months, followed by outperformance cycles of similar duration.
- Since late 2024, India has been underperforming US equities. However, over longer horizons (10–15 years), Indian equities have consistently delivered superior returns.
The takeaway: short-term weakness is part of a recurring cycle, not a structural issue.
India vs China: Liquidity-Driven Rally
In 2024 and 2025, China’s markets surged on the back of aggressive liquidity infusion by its central bank, delivering:
- ~25% returns in 2024
- Another ~35% in 2025 (year-to-date)
By contrast, the Nifty 500 has returned ~16% since 2024. While China has caught up, its valuations are no longer cheap. Historically, India has outperformed China over 5–15 years thanks to:
- Lower corporate debt
- Higher return on equity (ROE)
- Stronger governance and profit margins
This makes India structurally better positioned for long-term investors.
India vs Emerging Market Basket
Compared with the broader emerging market basket, India is currently underperforming. However, this is a familiar cycle. Inflows are moving into emerging markets broadly, including both China and India, but India’s current phase of underperformance should not be mistaken for weakness.
US vs Rest of the World
Another important dynamic: the US is losing relative strength. Despite the S&P 500 hitting record highs in early 2025, flows are gradually moving into global markets outside the US. This includes both developed markets and emerging markets.
For India, this represents a medium-term opportunity — once the underperformance cycle ends, the country is likely to attract significant global capital.
Why India’s Current Weakness Is Temporary
Several structural reasons support India’s long-term strength:
- Pro-growth RBI and Government policies: Coordinated fiscal and monetary push.
- Taxation reforms: Shift from higher rates on fewer people to lower rates with a wider base → sustainable GST collections.
- Domestic investors stepping up: Unlike 2010–2014, domestic institutions now absorb FII outflows, reducing volatility.
- Structural drivers: Strong demographics, rising consumption, reforms, and corporate efficiency.
Practical Investing Principles
- Don’t fight the RBI or the Government. Their combined actions can turn economic cycles within quarters.
- Stop obsessing over daily FII flows. $35B of selling against $800B of total holdings is not an exit.
- Focus on long-term sectors with structural growth:
- Defense
- Capital Markets
- Hospitals
- Insurance
- Metals
- Financial Services
- FMCG
- EVs and IT Batteries
ETFs make participation easier for investors who don’t want to pick individual stocks.
Investor Mindset: Avoiding Noise
It’s important to recognize that markets are not “bearish” right now. They are consolidating within a down-cycle. In such times, investors often get frustrated because good news seems to be ignored. However, these phases offer the best accumulation opportunities.
History shows that investors who buy during difficult phases benefit the most when the next up-cycle begins.
Conclusion: India’s Long-Term Equity Story Remains Intact
Short-term cycles of underperformance are natural. But over the long run, India stands out among emerging markets because of its governance standards, ROE, profit margins, and reform-led growth.
The message for investors is simple:
- Don’t get carried away by daily FII flows or market sentiment.
- Focus on long-term opportunities.
- Be patient during corrections and accumulate quality sectors and ETFs.
India remains one of the strongest equity stories globally. Cycles will come and go, but structural advantages ensure India’s long-term outperformance.
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