India’s Nifty 50 index is down 14% from its peak of 26,216.05 on 26 September. The benchmark index has also been one of the worst-performing global equity indices so far in 2025. A saving grace is India’s premium valuations have now got a reality check. The one-year forward price-to-earnings multiple of MSCI India has dropped to 17.93x from 23.3x on 26 September, showed data from Bloomberg. Over the same time, the measure for MSCI Emerging Markets has dropped from 12x to 11.21x.
Will things take a positive turn now, even as the economic growth outlook appears clouded amid global uncertainties and resultant delays to the domestic private capex cycle? Well, some are upbeat. “Current market falloff is close to the historical median,” said a recent Motilal Oswal Financial Services report.
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Motilal’s study of each drawdown phase since 2008 suggests the markets may be in the latter stages of a correction, with the ongoing weakness already having lasted about six months. A drawdown phase is defined as a period when the Nifty 50 experiences a drop of 10% or more from its previous all-time high. Each drawdown phase is considered complete once a new all-time high is reached.
Will outperformance return soon?
“Based on historical patterns, the MSCI India may potentially outperform the MSCI EM Index in the coming period,” said Jefferies India in a report on 5 March, after analysing the underperformance of the MSCI India relative to the MSCI EM Index since 2012.
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“Our analysis reveals that following significant periods of underperformance, MSCI India tends to outperform the MSCI EM Index. Currently, over a 90 and 180-day period, MSCI India has underperformed by 16 percentage points (ppt) and 22ppt, respectively. Historically, when the MSCI India has underperformed the EMs, it has outperformed by 3-18ppt and 4-24ppt in the subsequent 90 and 180-day period,” said Jefferies’ analysts.
The positive impact of income tax cuts and the regulatory easing by the RBI (rate cuts, liquidity boost) will come with a lag. Until then, fears of a trade war loom and investors may take cues from upcoming macro data points.
With India’s December quarter GDP data already out, the focus will shift to February retail inflation data, which is due on 12 March, and whether the RBI delivers another 25 basis points repo rate cut in April. Before that, the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting slated for 18-19 March will see the release of the Summary of Economic Projections.
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