- You could miss a 14.7% earnings growth boost by staying overweight US tech.
- India’s Nifty P/E is near its two‑year average, suggesting a measured entry.
- Energy and material stocks are leading US market gains, while mega‑cap tech stalls.
- USD strength can amplify US returns but also adds currency risk for INR‑denominated assets.
- A blended allocation mitigates sector‑specific shocks and captures upside in both markets.
You’re betting on the wrong market if you ignore India’s earnings surge.
India's Earnings Momentum Beats Global Valuation Concerns
After a tepid 2025 where Indian equities underperformed their global peers, the domestic market is now posting an eight‑quarter high earnings growth rate of 14.7%. The Nifty 50 added roughly 10% last year, but more importantly, the earnings visibility is tightening thanks to a revival in capital expenditure, deeper financial inclusion, and a suite of manufacturing incentives rolled out by the government. This macro‑tailwind translates into a higher forward‑earnings multiple for Indian firms, especially in sectors like consumer staples, industrials, and renewable energy, where profit margins are expanding faster than the broader market.
Historically, periods of strong earnings growth in India have preceded multi‑year outperformance relative to the S&P 500. For example, the 2017‑2018 earnings rally helped the Nifty outpace the US index by over 4% annually. The current earnings trajectory suggests a similar upside, but the key differentiator this time is the valuation gap. The Nifty’s price‑to‑earnings (P/E) ratio sits at 22.28, hovering near its two‑year mean, whereas the S&P 500 trades at a forward P/E above 20, inflated by mega‑cap tech multiples.
US Tech Valuation Pressures Shift the Risk Landscape
Across the Atlantic, the US market delivered a robust 16.4% total return, led by the Nasdaq’s 20.5% surge. Yet the underlying composition is changing. Mega‑cap technology names, once the engine of growth, are now down more than 4% as the S&P 500 flatlines for the year. Analysts attribute this pullback to heightened concerns that widespread artificial‑intelligence adoption could erode traditional software licensing revenues and cannibalize insurance, legal, and publishing business models.
Energy and materials have become the unexpected darlings, rallying over 15% as commodity prices stabilize and demand rebounds from a sluggish global growth outlook. This sector rotation underscores the importance of looking beyond momentum. A portfolio weighted heavily toward high‑valuation tech may see muted forward returns, while exposure to the rising energy, materials, and consumer‑necessity segments can deliver more reliable earnings growth.
Currency Dynamics: USD Strength vs INR Outlook
For NRIs, currency exposure is a decisive factor. The US dollar has appreciated against the Indian rupee during periods of heightened global uncertainty, acting as a hedge that boosts the home‑currency value of US‑denominated assets. Conversely, a stronger rupee can enhance the purchasing power of Indian investments when the dollar weakens.
Strategists note that the dollar’s safe‑haven appeal may wane if US growth slows, potentially narrowing the currency advantage. Meanwhile, India’s fiscal prudence and policy flexibility keep the rupee relatively resilient, especially when domestic demand remains robust. The interplay between these currencies suggests a balanced approach: hold sufficient USD assets to capture dollar‑strength gains, but also allocate to INR‑linked equities that can benefit from a domestic growth premium.
Strategic Allocation Playbook for NRIs
Bull Case for India
- Continued capex revival fuels earnings growth above 12% YoY through FY27.
- Valuation remains reasonable (Nifty P/E ~22), offering upside potential.
- Policy incentives in manufacturing and green energy create sector tailwinds.
Bear Case for India
- Near‑term valuation sensitivity could trigger short‑term pullbacks after the recent run‑up.
- External shocks—global rate hikes or commodity price spikes—could pressure margins.
Bull Case for US Exposure
- High‑quality balance sheets and innovation pipelines support earnings stability.
- USD strength amplifies returns for NRIs holding dollar‑denominated assets.
Bear Case for US Exposure
- Elevated mega‑cap tech valuations compress forward returns.
- Sector rotation toward energy and materials may leave tech‑heavy portfolios exposed.
Given these dynamics, the recommended allocation framework for NRIs in 2026 is a staggered, dual‑market approach. Initiate a core position of 45‑50% in Indian equities, focusing on consumer staples, industrials, and renewable energy firms with strong earnings guidance. Complement this with 30‑35% exposure to US large‑cap stocks, but tilt toward sectors that are less valuation‑compressed—such as energy, materials, and select financials. Reserve the remaining 15‑20% for cash or short‑duration instruments to capture opportunistic entry points as valuations adjust.
This blended strategy captures India’s earnings momentum while preserving the defensive benefits of US dollar‑denominated assets, positioning NRIs to navigate both valuation headwinds and currency swings throughout the year.