India's Stock Market Suffers Worst Relative Performance in 30 Years: What's Behind the Decline?

The Indian stock market has just experienced its worst relative performance in nearly three decades compared to other emerging markets. This surprising trend has left many investors wondering what's driving this decline. The main culprit seems to be a combination of factors, including a broader cyclical slowdown in the Indian economy, weak earnings growth, and a depreciating rupee.

Underperforming the Competition

The MSCI India index has only risen 2.2% in US dollar terms on a total-return basis year-to-date, significantly underperforming its Asian and emerging market peers. In contrast, the MSCI AC Asia Pacific ex-Japan index has gained 25.9%, while the MSCI Emerging Markets index has risen 29.9% during the same period.

Factors Contributing to the Decline

Several factors are contributing to India's stock market struggles. These include:

• Earnings growth slowdown: Earnings growth for MSCI India companies has moderated, with earnings growth now estimated at around 10% for FY26, marking a clear deceleration compared to previous years.
• Rupee depreciation: The Indian rupee has weakened by 5.3% against the US dollar so far in 2025, breaching the psychologically important 90 level in December.
• Trade pressures: The continuation of 50% tariffs imposed by the United States on India since August has weighed on the market, and could further widen India's trade deficit if they continue.

Impact on Competitiveness

While a softer currency typically helps exports, the rupee is still not particularly cheap when viewed over the long term. The real effective exchange rate has fallen about 11% from its peak in November 2024 and is currently at an 11-year low. However, it remains 12% above the low seen in September 2013.

What's Next?

Overall, India's stock market performance in 2025 reflects a combination of slowing earnings growth, currency weakness, and external trade pressures. Investors will be watching closely to see how these factors evolve in the coming months. Remember, this is perspective, not prediction. Do your own research and consider multiple sources before making any investment decisions.