Beyond growth: What India needs to match global stock market surge

The story is not very different even over a six-month or one-year timeframe; sure, Indian markets did hit record highs earlier this month, but they trail others by a significant margin. So, then what is different about the last year or so? The short answer is: Donald Trump and country-specific factors.

Country to country

While each market’s performance can be explained by different reasons, two words dominate the flows driving the highs: artificial intelligence (AI).

Take South Korea’s Kospi, where the AI wave has been surfed by the likes of Samsung Electronics and chipmaker SK Hynix. According to Japanese brokerage Nomura, South Korea has ‘very high’ exposure to AI – the highest of any Asian country.

“The benefit to Korea appears particularly substantial. AI growth is driving demand across the entire memory ecosystem, not just the high-end HBM (high bandwidth memory) market. Memory manufacturers have been prioritising HBM production, leaving less capacity for commodity memory, but rising AI and non-AI server demand is also pushing up demand for commodity memory,” Nomura analysts said in a note earlier this month. According to them, DRAM and NAND prices could rise as much as 65% in 2026, leading to “significant terms of trade gains for Korea’s economy”.

India, meanwhile, is classed by Nomura in the ‘low’ AI exposure category, alone with the likes of Thailand, Indonesia, and Philippines. For these countries, the direct spillovers from the global AI boom are less pronounced.

The Kospi has also been tracking the technology-heavy Nasdaq Composite, which has been the top-performing US index over the past six months. The return of political stability has also aided Korean stocks.

Meanwhile, in Japan, the weakening of the yen against the US dollar and Prime Minister Sanae Takaichi’s plans for a snap election have propelled shares higher. While the former helps boost earnings of export-led companies — the yen is at a near 18-month low against the dollar — the snap elections are seen bringing back the ‘Takaichi trade’: buying shares in the expectation that the government will spend more.

The Trump card

The biggest factor weighing on Indian stocks is the continued withdrawal of money by foreign investors. In the first 16 days of 2026, Foreign Portfolio Investors (FPI) have already net sold shares worth $2.5 billion. In 2025, the figure was nearly $19 billion, with outflows having begun in late 2024 after it became clear that Donald Trump and the policy uncertainty that accompanies him was likely to return to the White House for a second term.

Experts don’t see FPIs returning to the Indian market on a sustained basis until global geopolitical conditions are stable and a trade deal between India and the US is concluded. Both countries have been negotiating on a deal for the thick end of a year and have been said to be close to an agreement on multiple occasions.

“…the market expectation was that the much-delayed US-India treaty will materialise early in the year. But geopolitical developments took a turn for the worse with the US intervention in Venezuela and absence of positive developments on the trade talks,” said VK Vijaykumar, chief investment strategist at Geojit Financial Services.

FPIs are also cutting off Indian equities due to them being relatively higher priced compared to peers.

“Major challenge is not just tariffs, but also the valuation part. We have always been a market attracting a premium, but the comfort needed on the earnings front is missing. That’s why we are not seeing consistency in the FII (Foreign Institutional Investor) flows. DIIs (Domestic Institutional Investor) have stabilised the market, thanks to the strong retail flows. But sentimentally to push the market higher, there needs to be participation from other participants,” said Ajit Mishra, senior VP-research at Religare Broking.

While earnings growth is expected to pick up in the second half of FY26, investors want to see how the numbers actually pan out.

The long-term attraction of the Indian markets, however, seems to be intact, delivering 70%-plus returns over the last five years: more than what the Kospi (53%), FTSE (52%), and the DJIA (60%) have managed and comparable to the likes of Nasdaq Composite (79%). And this is despite the weak widely-divergent performances seen in the last one year.