India's domestic stock markets have delivered their poorest performance relative to other emerging economies in nearly 30 years during 2025, according to a stark new assessment from global brokerage firm Jefferies. The report highlights a significant underperformance by Indian equities compared to their Asian and global emerging market peers this year.
A Stark Underperformance in Key Indices
The data reveals a dramatic divergence. On a total-return basis in US dollar terms, the MSCI India index has gained a mere 2.2% year-to-date. This pales in comparison to the soaring benchmarks of its regional and global counterparts. In sharp contrast, the MSCI AC Asia Pacific ex-Japan index has surged 25.9%, while the broader MSCI Emerging Markets index has jumped 29.9% over the same period.
Jefferies stated unequivocally that this represents the Indian stock market's worst relative performance in three decades within both an Asian and an emerging market context. The brokerage links this weak showing to a broader cyclical slowdown currently affecting the Indian economy.
Key Factors Dragging Down Performance
Several interconnected factors are behind this historic underperformance. A primary concern is the marked deceleration in corporate earnings growth. Jefferies points out that earnings growth for companies listed on the MSCI India index has moderated, with estimates for the financial year ending March 2026 (FY26) now hovering around 10%. This signals a clear slowdown from the stronger expansion witnessed in previous years.
Compounding the issue has been the pronounced weakness of the Indian currency. The rupee has depreciated by 5.3% against the US dollar so far in 2025, breaching the psychologically significant level of 90 in December. Jefferies admitted surprise at the extent of this currency weakness, though expressed hope that current levels might represent a bottom for the rupee.
External Trade Pressures and Competitiveness
External trade dynamics are adding further pressure. The report highlights the ongoing impact of 50% tariffs imposed by the United States on India since August. Despite continuous diplomatic efforts for a trade deal, these tariffs persist. Jefferies warned that their continuation could exacerbate India's trade deficit, which already widened by 11.3% year-on-year to a record $282 billion in the first eleven months of 2025.
While a weaker rupee typically boosts export competitiveness, Jefferies offered a nuanced view. Analysing the long-term real effective exchange rate (REER), which has fallen about 11% from its November 2024 peak to an 11-year low, the firm noted the currency is still not particularly cheap historically. The REER remains 12% above the low seen in September 2013, based on Bank for International Settlements data.
In conclusion, Jefferies attributes India's dismal stock market showing in 2025 to a triple whammy of moderating earnings growth, significant currency depreciation, and persistent external trade pressures. This combination has positioned it as one of the weakest performers among its emerging market peers this year.
