Emerging Markets Surge in 2025: Is India Poised for a Comeback in 2026?
EM is back, India is next: Why the 2025 underperformance is the perfect setup for a 2026 comeback
The Economic TimesImage: The Economic Times
In 2025, the MSCI Emerging Markets Index outperformed the S&P 500, returning 33.6% compared to 17.9%. Despite India's underwhelming 4% return, structural improvements and fiscal measures suggest a potential recovery in 2026, making it an attractive market for investors.
- 01MSCI Emerging Markets Index returned 33.6% in 2025, outperforming the S&P 500.
- 02India's MSCI Index only achieved 4% returns due to various economic pressures.
- 03S&P upgraded India's sovereign rating, enhancing its appeal to global investors.
- 04The growth of Global Capability Centres in India is supporting employment and innovation.
- 05Retail investor participation has surged, bolstering domestic market resilience.
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In 2025, the MSCI Emerging Markets Index achieved a remarkable 33.6% return, significantly outperforming the S&P 500's 17.9%. This shift was largely attributed to a weakened US dollar, improved valuations, and better earnings growth across Emerging Markets. India, however, lagged behind with only 4% returns due to currency weakness and foreign investor withdrawals. Despite this, India's economic fundamentals are strengthening, aided by fiscal measures like income tax adjustments and the rollout of the 8th Pay Commission, which are expected to boost household consumption. Additionally, India's sovereign rating upgrade by S&P Global Ratings in August 2025 could attract more global investors. The expansion of Global Capability Centres and a growing domestic investor base further support India's market outlook. With private consumption growing at 7.7%, India is well-positioned for a potential recovery in 2026, making it an increasingly attractive option for investors looking at Emerging Markets.
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India's potential recovery could lead to increased job opportunities and higher consumer spending, positively affecting the economy.
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