The Indian stock market traded higher on Thursday, on signs of easing geopolitical tensions in the Middle East and growing optimism around potential US-Iran peace talks. Benchmark indices advanced nearly 0.5%, with the Nifty 50 reclaiming the 24,200 level.
Global markets, which had come under pressure following the escalation of the US-Iran war — disrupting crude oil supplies and driving a sharp rise in oil prices — have staged a strong recovery amid renewed diplomatic efforts.
On Wall Street, the S&P 500 has fully recouped its losses linked to the conflict and has gained 3% this week, hovering near record highs. The Nasdaq has risen approximately 5%, marking its longest winning streak since 2019, while the Dow Jones Industrial Average is up over 1%.
Asian markets also exhibited strength, with Japan’s Nikkei approaching record high levels.
Despite the global rebound, Indian equities have lagged their peers. Although the Nifty 50 has recovered nearly 2,000 points from recent lows following a 12% correction triggered by the conflict, the index remains about 8% below its all-time high.
On a year-to-date (YTD) basis, the Nifty 50 is down approximately 7%. In comparison, the Dow Jones is marginally higher by 0.17%, the Nasdaq has gained over 3%, and the S&P 500 has risen 2.4%. Among Asian peers, Japan’s Nikkei has surged over 14%, while South Korea’s Kospi has rallied more than 43%.
“The Indian stock market’s relative underperformance versus global peers is largely driven by sustained FII outflows and sectoral imbalances. Foreign investors have been consistent sellers amid geopolitical tensions, while higher US bond yields of 4.3–4.5% and better global opportunities have diverted capital away from India,” said Ajay Garg, Director & CEO, SMC Global Securities.
He noted that unlike the US, where tech and AI stocks fuel growth, India’s market is dominated by financials and consumption, limiting broader upside. A 2–3% rupee depreciation has further reduced foreign investor returns, keeping markets subdued despite strong domestic inflows and 6–7% GDP growth expectations.
Over a longer horizon, the Indian market has undergone both time-wise consolidation and a correction in headline indices. Over the past 18 months, the Nifty 50 has declined 6.1%, while delivering a CAGR of 11.2% and 10.6% over three-year and five-year periods, respectively, according to Choice Institutional Equities.
Key factors behind the underperformance of Indian stock market:
1. Limited exposure to high-growth “sunrise” sectors
India’s market currently lacks significant representation in emerging high-growth sectors such as artificial intelligence (AI), data centres, robotics, and semiconductor manufacturing — areas that are attracting substantial global capital.
2. Macroeconomic vulnerabilities
India’s macroeconomic environment remains exposed to domestic and external risks, including fluctuations in credit growth, weather-induced inflation, and uneven consumption demand. External factors such as volatile crude oil prices, supply chain disruptions, and tariff uncertainties further add to the risk profile, said Choice Institutional Equities.
3. Moderating corporate earnings growth
Global investors are increasingly favouring markets capable of delivering 15–20% annualised earnings growth. Comparatively, India’s earnings trajectory has shown signs of moderation, impacting investor sentiment.
4. Elevated valuations relative to peers
Indian equities have historically traded at a premium to global markets. The recent correction has been partly driven by a reassessment of previously elevated growth expectations, particularly in mid- and small-cap segments.
The Nifty 50’s trailing twelve-month (TTM) P/E has moderated from around 24.4x in September 2024 to approximately 21.3x as of April 15, 2026, below its five-year average of ~23.0x, said the brokerage firm.
5. Attractive opportunities in global markets
Markets such as the US, Europe, Japan, South Korea, and Taiwan offer broader exposure to high-growth sectors including AI, semiconductors, cloud computing, electric vehicle batteries, robotics, biotechnology, and aerospace & defence. This has resulted in durable FII outflows from India.
“Valuations have corrected to more reasonable levels, but India still looks expensive when placed next to Japan, Taiwan, or Korea,” said Tarun Singh, MD & Founder of Highbrow Securities.
6. Persistent FII outflows and currency pressure
Sustained FPI outflows have weighed on Indian equities, with outflows amounting to nearly ₹1.8 lakh crore in 2026 so far. Combined with weaker export growth, this has exerted pressure on the Indian rupee, which has depreciated approximately 9% over the past three years and 25% over five years.
“The recent FPI outflows are being driven by a mix of cyclical profit-booking and a deeper structural shift in how global investors now perceive India, and frankly, the structural part is proving more consequential,” said Singh.
Add to that a shifting global currency dynamic, where the Iran conflict has spurred stronger trade flows in yuan and subtly reinforced China’s influence on global capital movement, and foreign investors are reevaluating exposure across emerging markets, he added.
Throw in geopolitical tensions, elevated oil prices, taxation concerns, and ease-of-investing hurdles, and global funds have found enough credible reasons to move capital elsewhere.
According to Singh, FPI flows are likely to stay choppy going forward rather than see any sharp reversal. A strong, immediate FPI comeback though still looks unlikely in the near term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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