After a year of underperformance, can SENSEX, NIFTY50 catch up with Wall Street? Here’s what global investment firms say

For nearly a year, Indian equity benchmarks have been underperforming their US peers, which are hitting record highs.

The NIFTY50 index is currently down 4.42% from the record high of 26,277, and the 30-share SENSEX is down 4.73% from its all-time high of 85,978. Both the indices touched their respective record highs on September 27 last year.

On the flipside, Nasdaq notched a record high close on Friday, lifted by Microsoft as investors looked ahead to the Federal Reserve's policy meeting next week. The Fed is widely expected to cut interest rates to counter a slowdown in the jobs market.

Fuelled by Tesla and other technology-related stocks, the Nasdaq added to a rally in the previous session that saw all three indexes hit all-time highs.

Analysts see silver lining

Analysts at global investment firms see a silver lining for Indian markets and say that things could change drastically if India and the US finalise a trade agreement, as domestic stocks are currently trading at attractive valuations.

The NIFTY50 is currently trading at a price-to-equity (PE) multiple of 22.1 times, which is relatively lower than the PE ratio of 25 times it was trading at when it touched a record high in September last year.

Global investment firms Jefferies, HSBC and JP Morgan have highlighted near-term uncertainties for Indian markets but also laid out conditions for a potential market rebound. While weak foreign investor flows and global headwinds remain a concern, stronger domestic demand and improving macro fundamentals are expected to support the market in the medium to long run.

In its India strategy note, Jefferies highlighted that foreign portfolio investor (FPI) positioning in India remains weak, and the country has underperformed global peers this year. This leaves room for a sharp upside if any positive developments emerge on the India-US trade front.

Jefferies expects domestic institutional buying to provide downside support, keeping the market from slipping significantly. It believes that a sideways market could in fact present opportunities for bottom-up stock-picking, particularly in small- and mid-cap growth stocks.

At last year’s India Forum, India was a clear outperformer, but this year it has been a laggard. Still, Jefferies argued that the current backdrop of light positioning, easing growth expectations, reduced downgrades and compressed valuation premiums versus emerging markets has created fertile ground for long-term alpha generation.

HSBC struck a more constructive tone, projecting that India’s growth will accelerate from the fourth quarter. The global investment firm said that the risks of earnings downgrades have moderated, thanks to pro-growth policies and a favourable base effect, creating conditions for foreign investors to return to Indian markets.

JPMorgan maintained a cautious stance for the immediate term, noting that short-term uncertainties are likely to keep Indian equities rangebound. However, it expects improving macroeconomic indicators and a strong earnings trajectory from the second half of FY26 to lay the foundation for a sustained rally.

JP Morgan has set a base-case NIFTY50 target of 26,500 over the next 6-9 months, with a bull-case target of 30,000 if conditions improve more quickly.

Why did Indian equities underperform?

The underperformance by Indian benchmark indices began in October last year owing to the expensive valuations Indian markets were commanding back then. Persistent selling by foreign institutional investors and weak corporate earnings were already causing Indian markets to bleed, but higher tariffs on Indian goods exacerbated the weakness.

The US recently imposed a 50% tariff on all Indian goods entering the US markets. This included a 25% reciprocal tariff on India and another 25% duty from August 27 as a penalty for buying Russian crude oil and military equipment.

The foreign institutional investors have sold shares worth ₹2.41 lakh crore since October last year. Since the start of 2025, they have sold shares worth ₹1.41 lakh crore, data from the National Securities Depository Limited (NSDL) showed.

The fall in the markets has become so persistent that even positive news announcements have done little to boost the fortunes of Indian equities.

The government announced a major boost to consumption by reducing Goods and Services Tax (GST) rates earlier this month. Further, the Reserve Bank of India has been at the forefront to boost liquidity in the system and has reduced interest rates three times before hitting a pause button in August.

Since February, the RBI has cut the repo rate by 100 basis points to 5.5% and also announced a cut in the cash reserve ratio (CRR). But these measures have done little to boost the upswing in the equity markets.

Analysts say that while Indian equities have lagged global peers for the past year, the groundwork for a recovery appears to be in place. Attractive valuations, resilient domestic demand and supportive policy measures provide a cushion, even as foreign investor sentiment and global headwinds weigh on momentum.