India’s Missing Mention: A Contrarian Signal for Indian Equities

There are moments in markets when silence speaks louder than headlines. For Indian equities, this may be one such moment. A recent Wall Street Journal article spotlighted South Korea, Taiwan and Brazil, powered by AI, Semiconductors and oil resilience. Yet India, once the poster child of EM investing, barely appeared in the visible narrative. That omission is not merely symbolic. It captures the mood around the Indian equity market today.[EasyDNNnews:PaidContentStart]

For years, India was treated as the cleanest structural story within emerging markets. It had political stability, strong domestic flows, rising retail participation, a large consumption base, credible corporate balance sheets and a long runway for formalisation of the economy. Global investors were willing to pay a premium for that combination. India was not just another emerging market; it was the premium emerging market.

That narrative has now cooled. The global market’s attention has shifted towards AI hardware and semiconductor-heavy economies. Taiwan and South Korea now sit at the centre of the global AI capex cycle, while India’s service-heavy model, led by BFSI and IT services, appears less exciting in comparison. India’s MSCI Emerging Markets weight has reportedly fallen from 21 per cent in September 2024 to 12 per cent, while Taiwan’s weight has risen to around 25 per cent. India’s valuation, with Nifty still trading at a premium to several regional peers despite slower earnings expectations, remains elevated.

This is where the debate becomes interesting. India is no longer being loved blindly. Foreign investors are questioning valuations. The rupee has weakened. Crude oil has become a macro risk again. At the same time, earnings expectations are also being reset. Earlier market hopes of mid-teen earnings growth now look optimistic. The more conservative forecasts of 11–13 per cent, or even lower in some scenarios, suggest that India may have to grow into its valuation rather than simply demand one.

Yet, this is exactly how a contrarian opportunity often begins. Sentiment does not turn positive when everything looks perfect. It turns when the bad news has been discussed, discounted and digested. A market that was once over-owned, over-loved and over-valued is now being questioned. That may not be comfortable, but it is healthy. Premium markets need periods of narrative repair. India is going through one.

The most important support is domestic liquidity. Even as foreign investors step back, domestic institutional investors and retail flows have created a strong market floor. This domestic bid may not be enough to create a runaway bull market on its own, but it has changed the structure of Indian equities. India is no longer fully dependent on foreign capital to survive periods of global risk aversion.

The next phase, however, will not reward broad market enthusiasm. The easy beta trade appears behind us. Investors will need to be more selective. Sectors linked to government capex, Defence indigenisation, industrial manufacturing, hospitals, materials and energy infrastructure may continue to offer stronger visibility. On the other hand, legacy IT services may face a more difficult period as global capital prefers AI hardware over software services.

For investors, the message is clear: avoid paying any price for growth, avoid weak balance sheets, avoid companies where margins are vulnerable to crude or currency shocks, and focus on businesses with earnings visibility, pricing power and a strong domestic demand link.

India’s absence from the global emerging market spotlight may feel disappointing. But investors should remember that markets rarely deliver their best opportunities when everyone is applauding. Often, the better entry points emerge when the crowd looks elsewhere.

The contrarian case is not that India will immediately outperform. The case is that expectations have been reset, valuations are being questioned and investor sentiment has cooled meaningfully. That combination, if supported by earnings recovery, which was visible in the latest quarterly earnings, and macro stability, can quietly prepare the ground for India’s return to the global emerging market conversation.

RAJESH V PADODE
Managing Director

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