India's equity markets have endured a grinding stretch of underperformance, and according to Vikash Kumar Jain, MD and Head of Research at CLSA Investment, the numbers tell a sobering story. Since India peaked in late September or early October 2024, the Nifty has trailed Korea by a staggering 180 percentage points , meaning an investor who moved money from India to Korea at that point would have nearly tripled their investment over roughly 18 months. Against Taiwan, the underperformance stands at 110 percentage points.
Yet Jain argues this very underperformance has done something constructive: it has compressed India's relative valuations and reset investor expectations to levels not seen in years. CLSA's proprietary India Bull-Bear Index, a sentiment gauge that signals actionable extremes only below 10% bullish or above 90% bullish, closed last week at 19.6% bullish. While not yet at a technical extreme, Jain notes the market is "reasonably light" on positioning, which limits further downside if global risk appetite stabilises.
Valuations: No longer stretched, not yet cheap
At roughly 18–18.5 times one-year forward earnings, the Nifty is trading near its 10-year average, a meaningful shift from the extended multiples that kept CLSA cautious for most of the past 18 months. Jain now sees a bull-case upside of 20–30%, compared to just 10–12% a year ago. His key message: India no longer sits at the top of the global valuation league table as the world's most expensive large market.
Geopolitical risk
Middle East conflict and the Strait closure remain the key wildcard. A resolution could trigger a sharp rotation back into international markets, including India.
FII flows: The path back
Most FIIs hold multi-country mandates. Selling was funded by India, which sat outside the AI rally. Once war risk fades, inflows into EM and Asia ex-Japan funds could resume, reducing urgency to sell India.
DII cushion thinning
Domestic institutional cash buffers are lower than through most of 2025. A one-off pension fund tailwind has also faded. Bigger market upsides will require FII participation, not just domestic flows.
The CLSA strategist stopped short of calling a definitive bottom, pointing to the unpredictability of geopolitical events. But his bottom line is clear: the pain of relative underperformance has already done much of the market's heavy lifting, and the risk-reward for patient investors looks considerably more balanced today than at any point in the past three to four years.
