Inside India's 12 months of underperformance

The structural story remains intact and outperformance to resume shortly.
Mugunthan Siva

India Avenue

Over the last 12 months to 30 September 2025, India has underperformed other markets:

Source: MSCI
Source: MSCI

Giving up some gains 

As you can see the last 12 months hasn't been great. Despite this India's returns have been very robust over the last 5 years. Perhaps only second to the Mag-7 led, US markets, superior to its emerging market peers. 

Over the last 12 months (to 30 Sept 2025) India's markets come off due to:

  • Normalising earnings growth (from the rampant pace of 20% CAGR from FY20-24)
  • Macro clouds regarding Trump's tariff aggression towards India, and
  • High valuations in India due to a strong corporate and macro environment (market peaked in September 2024).

Liquidity Support

Over the last 12 months we have seen the Central Bank (RBI) cut rates by 100bps, with significant potential to cut further, given inflation is running < 2% at present, whilst cash rates are at 5.50%. 

Additionally, tax rates have been cut on the personal level (raising threshold for personal tax) and the GST rationalised (top rate of 28% cut to 18% for many goods) - which should provide good impetus for consumption over the next 6-12 months in particular.

Trade Deals

Additionally, it is likely that the US and India will achieve a trade deal and India may be able to cement many other trade relationships with other regions (as seen recently with the FTA with the UK) to make its export story gather legs going forward. 

Indian markets have illustrated leadership in October 2025 so far, with a view to this playing out. This should be good for India's corporate earnings through its export industries, where it is seeking to move up the value-chain like Pharmaceuticals, IT Services, Auto & Ancillaries. 

A positive outcome of the troubled relationship of recent with the US, is India's focus elsewhere on regions like SE Asia, Middle East, Africa and LATAM, to grow and diversify its export base, long-term.

Earnings Normalising

Over the last few quarters earnings are showing signs of starting to normalise towards India's long-term run rate of nominal earnings at around 11% CAGR. Whilst there still may be a phase "time correction" left to play out, it is likely that India will resume return equity market leadership once some of the macro headwinds at play turn more favourable. 

Be Active 

However, only active funds and ETFs may benefit from this theme, as market cap weight and EM/Asia fund exposure heavily favours local financials and consumer stocks (the latter of which is what puts India on the map as an expensive equity market), rather than India's exporting cohort of companies.

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Mugunthan Siva
Managing Director
India Avenue

Mugunthan Siva is Managing Director of India Avenue, an Australian based boutique investment management company, domiciled in Sydney, with a presence and advisory network in India. He has over 30 years experience in Australia and is lead...

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