From worst to best! India is now the best performing stock market in the last one month. Missed the rally?

India’s stock market has staged a striking reversal in fortunes, shedding its tag as the world’s worst performing major equity market to become the best performing one, as FIIs return, domestic liquidity remains resilient and expectations of an earnings recovery draw capital away from crowded AI- and semiconductor-linked markets.

The shift is reflected in market performance. The Nifty has gained 13% over the past month, while the Nasdaq has fallen 6%. The Dow Jones and FTSE have risen just 1% and 2%, respectively, while Brazil’s Bovespa, Taiwan’s benchmark, South Korea’s Kospi and Japan’s Nikkei have all declined sharply. Foreign investors have bought over Rs 73,000 crore of Indian equities in November so far, putting the month on course to set a new record.

The turnaround comes after a prolonged period of underperformance and sustained foreign selling had weighed on Indian stocks. But the scale and speed of the latest rally raises a key question: can India’s outperformance continue into 2027, or has the market moved too quickly on improving sentiment and foreign buying?


“The return of FIIs has undoubtedly been one of the biggest catalysts behind India’s recent market rally, but it would be incorrect to attribute the entire recovery to foreign inflows alone,” Sudeep Shah, head of technical and derivatives research at SBI Securities, told ET Markets.

For several months, FII selling had created a disconnect between India’s domestic economic fundamentals and market performance, Shah said. The return of foreign investors has improved liquidity, strengthened confidence and triggered a sharp reversal in market positioning.

But the rally is also being supported by resilient domestic institutional flows, consistent SIP investments, improving earnings visibility and India’s relatively strong macroeconomic outlook, he said.

Another factor is the rotation of global capital away from crowded AI- and semiconductor-linked markets, particularly Taiwan and South Korea, towards economies with more diversified growth opportunities. India has benefited from the shift because of its domestic consumption drivers and lower direct dependence on the global semiconductor investment cycle, Shah said.

“Therefore, I would view FII buying as the missing catalyst that accelerated India’s recovery rather than the only missing link,” he said.

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Earnings revival

Dr. V K Vijayakumar, chief investment strategist at Geojit Investments Ltd., also said FIIs were only one part of the market’s recovery.

“FIIs were a significant missing link in the puzzle but not the only one. An important missing factor was the earnings growth,” Vijayakumar said.

The market correction from September 2024 was triggered by a slowdown in earnings growth, which fell to 6% in FY25, he said. While earnings growth improved to 9% in FY26, it remained subdued.

That picture has changed in FY27, with Q1 and Q2 results pointing to a significant revival in earnings. Based on current trends, Nifty 50 companies could deliver earnings growth of about 15% in FY27, Vijayakumar said.

The improvement in earnings has also helped bring foreign investors back, while stability in the rupee has provided additional support, he said.

Still, the recent pace of gains is unlikely to continue in a straight line. “The nearly 13% rally in the Nifty has been exceptionally sharp, and some consolidation or intermittent profit-booking would be a healthy development,” Shah said.

The rally also needs to be seen against the backdrop of India’s prolonged underperformance and the correction across several parts of the market earlier, he said. Its sustainability will depend on whether the improvement in foreign flows is matched by consistent earnings growth.

Domestic consumption, infrastructure investment, manufacturing expansion and resilient economic fundamentals continue to support India’s medium term investment case, Shah said. Banking and financial services, capital goods, infrastructure, automobiles and select consumption-oriented sectors could remain key opportunities, provided earnings visibility remains strong and valuations stay reasonable.

But India’s valuation premium over several emerging markets warrants caution, particularly if earnings fail to match expectations. Crude oil prices, US bond yields, dollar strength and geopolitical developments will also influence foreign allocation decisions.

“Overall, I remain constructive on Indian equities as we move into 2027, but expect the next phase of the market to be more selective and fundamentally driven rather than purely liquidity-led,” Shah said. “The recent FII comeback has provided the momentum for the rally, but the real test will be whether corporate earnings can sustain it.”

Vijayakumar also expects India’s outperformance to continue, but sees limits to the rally. Domestic institutional profit-booking and higher interest rates, including two more 25-basis-point rate hikes in FY27, could restrain the market, he said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)