Mumbai, October 6 — India’s stock market has underperformed despite strong economic growth, with the benchmark Sensex and Nifty indices posting losses for eight consecutive weeks, the longest losing streak in 25 years, according to Reuters. The company said Indian retail investors in the Nifty have seen their wealth erode by about 15% in 2026, a significant decline compared to the substantial returns on South Korea’s Kospi index, which has seen 62% returns since January and 170% over the past two years.
Data shows that foreign institutional investors have withdrawn a substantial amount of money from Indian markets, with Bernstein Research data indicating a net withdrawal of $40 billion in the past two years, bringing the decade-long net foreign inflow close to zero.
Domestic Mutual Fund Assets
Domestic mutual fund assets under management have grown significantly, from $125 billion in 2016 to $900 billion in 2026, with the number of individual investors tripling to 150 million, providing a buffer against sharper declines. Officials noted that this growth in domestic mutual fund assets has helped to mitigate the impact of foreign investor withdrawals on the Indian stock market.
A sharp rise in crude oil prices has also contributed to the underperformance of the Indian stock market, with prices remaining between $90 and $100 per barrel due to ongoing disruptions in the Strait of Hormuz, now in its eighth month. The majority of India’s oil imports, over 90%, and nearly half of its LPG and LNG shipments, pass through this route, making the country vulnerable to supply chain disruptions.
Impact of Crude Oil Prices
Fund manager Hari Shyamsunder of Franklin Templeton Asset Management India told the BBC that markets absorb crude prices between $70 and $90, but levels above $100 a barrel stress inflation, earnings, and margins. The rising oil prices have contributed to higher global interest rates, with the effective yield on US government bonds exceeding 5%, near 25-year highs, prompting foreign capital to shift from emerging market equities like India to safer US bonds.
The Indian rupee’s depreciation has further reduced dollar-denominated returns, with the Nifty delivering just 6% annualized dollar returns over the past decade. Stock valuations remain elevated relative to earnings, especially as AI-driven profit surges in South Korea and Taiwan have outpaced India’s slower adoption of new economy sectors, leaving Indian large-cap stocks representing a ‘bygone’ economic model despite their still-high price-to-earnings ratios.
Foreign Investment and Trade
The substantial withdrawal of foreign institutional investors from the Indian market has raised concerns about the country’s ability to attract foreign investment. The US administration, led by President Donald Trump, Vice President JD Vance, and Secretary of State Marco Rubio, has been closely monitoring the global economic situation, including the impact of rising oil prices and interest rates on emerging markets like India. As the Indian stock market continues to underperform, officials are looking for ways to boost investor confidence and attract foreign investment.
The growth of domestic mutual fund assets and the increasing number of individual investors are positive signs, but the country needs to address the challenges posed by rising oil prices and higher global interest rates to regain its momentum in the global market. Looking ahead, the Indian stock market is likely to remain volatile, with investors closely watching the movement of crude oil prices and global interest rates.
The ability of the Indian economy to adapt to the changing global economic landscape and attract foreign investment will be crucial in determining the future direction of the stock market.
