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Economy
India vs. Emerging Markets: Why Everyone Else Is Winning the Earnings Race
Zoom out from any single day's Sensex move and a harder question emerges: why has India, long the emerging-market darling, spent 2026 as one of the group's weakest performers? By the first third of the year, Taiwan's benchmark had rallied roughly 40% and South Korea's Kospi more than 60% in dollar terms, while the Sensex and Nifty were down 13–14% over the same stretch even after a partial recovery since, the Sensex was still sitting 6.57% below its year-ago level as of September 8. The gap isn't random noise. Strip away the headlines and the story is mostly about one thing: earnings. Other emerging markets are growing profits faster, and global capital is following the growth.
The Scoreboard: India Trails the Pack
By almost any cross-market yardstick, 2026 has been a year to forget for Indian equities relative to peers. Through the first four months of the year, Taiwan's equity index gained close to 40% in dollar terms and South Korea's Kospi surged over 60%, while Japan's Nikkei added around 18% and China's Shanghai Composite rose roughly 7% even as the Sensex and Nifty 50 fell 13–14% over the identical window. That reversed some of the pattern seen a year earlier, when the same two Indian benchmarks had trailed the MSCI Emerging Markets Index by the widest margin since 1993, according to Bloomberg-sourced comparisons cited in year-end 2025 market reviews.
India's underperformance moderated through the year but didn't disappear. By late June, the Sensex and Nifty were still down roughly 9.5% and 8% respectively for 2026, with FII selling in the first half of the year already exceeding the whole of 2025's outflows. The most recent snapshot of the Sensex's third straight losing session on September 8, closing at 75,777 leaves the index 6.57% below where it stood a year ago, even as several Asian peers sit at or near multi-year highs.
What's Actually Driving the Gap: Earnings, Not Just Sentiment
The simplest explanation is also the most uncomfortable one for India bulls: other markets are growing profits faster. Sell-side earnings-growth estimates compiled by East Capital for 2026 put South Korea at roughly 38% EPS growth and Taiwan near 20%, against an MSCI Emerging Markets average of about 17% and MSCI India at approximately 17% as well respectable, but no longer a standout within the EM universe the way it was in prior cycles. Separately, LPL Research has projected EM earnings growing around 29% in 2026, more than double the roughly 14% expected for the US market, with India named as one of several EM constituents (alongside Korea and China) benefiting from that broader re-rating rather than leading it.
India's own Q1 FY27 numbers illustrate the underlying margin problem. SBI Research data on more than 2,200 listed non-BFSI companies showed net sales up 24% year-on-year for the June quarter, but EBITDA growth of only 9% and profit-after-tax growth of just 4%, as higher input costs ate into margins. Brokerage estimates for Nifty-listed companies specifically pointed to profit growth in the high single digits for the quarter well below the double-digit full-year forecasts analysts had been pencilling in only months earlier.
Some analysts warn the headline numbers flatter India Inc. even further than they should. Bernstein has cautioned that reported profit-growth figures for the June quarter were skewed by roughly ₹18,000 crore in combined losses at India's three largest state oil marketing companies, meaning the underlying picture for the rest of corporate India is softer than aggregate PAT growth suggests a key reason the brokerage has kept a relatively conservative Nifty target of 26,000.
The AI Trade Is Largely Bypassing India
The single biggest swing factor behind Korea's and Taiwan's outperformance is the global AI and semiconductor capital-expenditure boom, and India has comparatively little exposure to it. Global fund reallocation toward AI-driven economies has been cited repeatedly by market commentators as a structural reason capital is favouring North Asian markets over India, with index funds and passive flows increasingly weighting toward chip and hardware-heavy indices.
India's own technology sector has been the domestic casualty of this divergence. The Nifty IT index was down roughly 28% over the first half of 2026 the worst-performing sector on the domestic market as AI-driven pricing pressure and cautious client budgets weighed on the outsourcing-heavy business model that underpins most large Indian IT names, even as rupee depreciation offered a partial cushion.
Money Is Voting With Its Feet
Foreign institutional investors have been persistent net sellers of Indian equities through 2026. FII outflows in the first six months of the year already exceeded the full-year total for 2025, with selling in the first four months alone approaching ₹2 lakh crore. Elevated crude oil prices ,driven in large part by Iran–US tensions in the Gulf, the same factor cited in the September 8 Sensex fall , have compounded the pressure by widening India's import bill and raising inflation and current-account concerns, a vulnerability that is structural to India as a net oil importer rather than specific to any one earnings season.
Relative valuation has added to the case for rotation. Commentary accompanying the FII outflow data has pointed to China's CSI 300 trading at cheaper earnings multiples than Indian indices, giving global allocators a value-plus-growth argument to shift capital toward North Asia rather than a pure momentum trade.
The Bull Case Nobody's Talking About
Despite the scoreboard, India's underlying growth story hasn't collapsed. The IMF has projected India's GDP growth at around 6.4% for both 2025 and 2026, still comfortably ahead of most large emerging economies, and Moody's has forecast India leading emerging-market growth with 7% expansion in 2025 before moderating to roughly 6.4% in 2026 , a pace well above the weighted emerging-market average.
Brokerages expect the earnings gap to narrow rather than widen from here. One asset manager's 2026 outlook projected India's earnings growth re-accelerating to 13–14% annually in 2026 and 2027, up from around 11% in 2025, framing the current stretch as an extended-but-ending earnings downgrade cycle rather than a permanent de-rating. Other estimates put India Inc.'s earnings CAGR at roughly 15% over FY26–28, with margin headwinds expected to fade in the second half of FY27 as input-cost pressure eases.
Valuations have also become more reasonable after the 2025–26 underperformance. India's price-to-earnings premium versus global and emerging-market peers has fallen below its 10-year average, according to Goldman Sachs research cited in year-end 2025 coverage, while brokerage consensus at the time put Nifty's end-2026 target near 28,992 , implying meaningful upside if earnings deliver on the re-acceleration analysts are forecasting.
What This Means for Different Readers
For retail investors: India's earnings underperformance versus Korea and Taiwan is real, but it's concentrated in specific sectors (IT, export-linked names) rather than the whole market check sector weightings before assuming the entire portfolio is affected.
For those chasing the AI/semiconductor rally: That trade has largely played out through Korean and Taiwanese equities so far in 2026, not Indian ones; direct India exposure to the AI capex cycle remains limited outside a handful of names.
For long-term SIP investors: Domestic institutional and retail inflows have continued even through the FII selling, which several commentators have flagged as a sign of increasing market maturity rather than a reason to stop contributions.
For anyone timing entries: Brokerage earnings-reacceleration calls for FY27 are forecasts, not certainties , the same margin pressure that hit Q1 FY27 results could persist if input costs or oil prices stay elevated.
At a Glance
Metric | Value |
Sensex/Nifty YTD return (Jan–Apr 2026, dollar terms) | -13% to -14% |
Taiwan index return (Jan–Apr 2026, dollar terms) | ~+40% |
Kospi (South Korea) return (Jan–Apr 2026, dollar terms) | ~+62% |
Sensex close, Sept 8, 2026 vs 1 year ago | -6.57% |
Nifty IT index, H1 2026 | ~-28% (worst domestic sector) |
MSCI Korea 2026E earnings growth | ~37.9% |
MSCI Taiwan 2026E earnings growth | ~20.2% |
MSCI EM average 2026E earnings growth | ~17.1% |
MSCI India 2026E earnings growth | ~16.6% |
India Q1 FY27 sales / EBITDA / PAT growth (YoY) | +24% / +9% / +4% |
FII selling, H1 2026 vs full-year 2025 | Exceeded full-year 2025 total |
Sources:
[Business Standard — “Year-ender 2025: India stocks lag EM, Asia in worst showing in decades”]
Angel One — “FIIs Selling in Indian Equities Nears ₹2 Lakh Crore Mark Within First 4 Months of 2026”
[Business Today — “FII selloff in H1 2026 exceeds 2025 outflows”]
East Capital — “Outlook 2026: Why invest in emerging and frontier markets”
LPL Research — “Five Reasons the Run in Emerging Markets Could Continue”
Business Today — “India's corporate sector shows resilience as sales rise 24% in Q1 FY27”
[Forbes India — “Resilience Remains but Caution Warranted for India Inc's Earnings”]
[Career Ahead — “Bernstein Warns Against Misreading Q1 FY27 Results”]
J.P. Morgan Private Bank — “2026 Asia Outlook: Indian equities”
[Invesco — “2026 Midyear Investment Outlook: India equities”]
[Moody's Ratings / Business Standard — “India to lead emerging market growth with 7% GDP rise in 2025”]
Reuters — “Earnings, policy support set to lift Indian equities after 2025 underperformance”
KuberHunt — “Market Update - Sept 8, 2026: Sensex Falls for a Third Day, Trails Last Year by 6.5%”
Disclosure: This article is published by KuberHunt for informational and educational purposes, drawing on third-party market analysis and publicly available brokerage, IMF, and Moody's research. KuberHunt is a technology and research distribution platform connecting investors with SEBI-registered Research Analysts and Investment Advisors. KuberHunt itself is not a Research Analyst or Investment Adviser and does not provide investment advice, create, or endorse any specific investment recommendation. This article does not constitute investment advice and should not be used as the basis for any trading decision. Cross-market return and earnings-growth figures are drawn from multiple secondary sources using different methodologies and time windows (calendar year vs. financial year, rupee vs. dollar terms); readers should treat comparisons as directional rather than precise and verify current figures independently before acting on them.
Educational content, not investment advice. Markets carry risk; read the disclosures on any Reco before you act on it.
Educational content, not investment advice. Markets carry risk; read the disclosures on any Reco before you act on it.