Indian stock market turned from worst to best! This is how he became No. 1 in the world

Till last one month, India was the worst performing market in the list of global stock markets. Foreign investors were leaving. The leading stocks of the country saw a continuous decline. As if magic had happened in the last one month. No stock market in the world has performed like India.

Significantly, stock market figures are seen at pre-war levels. The biggest reason for this is the withdrawal of foreign investors. Due to which the stock market has seen a lot of improvement. Due to expectations of earnings improvement, capital from those markets is flowing into India, where there was already a lot of investment in AI and semiconductor related stocks.

This change is clearly visible in the market performance. The Nifty has gained 13% in the past one month, while the Nasdaq has lost 6%. The Dow Jones and the FTSE rose just 1 percent and 2 percent, respectively, while Brazil’s Bovespa, Taiwan’s benchmark, South Korea’s Kospi and Japan’s Nikkei fell sharply. So far in November, foreign investors have invested Rs. Over 73,000 crore worth of Indian stocks have been bought, which is likely to set a new record this month.

The change comes after a prolonged period of poor performance and continued selling by foreign investors, which pressured Indian stocks. But the scale and pace of the recent rally raises a bigger question: Can India’s outperformance continue into 2027, or has the market gone too far due to improving sentiment and foreign buying?

Withdrawal of foreign investors

Sudeep Shah, head of technical and derivatives research at SBI Securities, said in an ET Markets report that the withdrawal of FIIs is undoubtedly the biggest reason behind India’s recent market rally, but it would not be fair to attribute the entire recovery to foreign investment alone. Shah said the sell-off by FIIs over several months has led to a disconnect between India’s domestic economic fundamentals and market performance. The return of foreign investors has improved liquidity, boosted confidence and brought about a major change in market conditions. He said the rally is also being supported by domestic institutional investment, continued SIP investment, good prospects for earnings improvement and India’s relatively strong macroeconomic outlook.

Another reason is that global capital is now moving away from markets heavily invested in AI and semiconductor-related stocks — especially Taiwan and South Korea — and toward economies with more diversified growth opportunities. India has benefited from this shift, Shah said, as domestic consumption is a major base here and India’s direct dependence on the global semiconductor investment cycle is less. That said, therefore, I see FII buying as the factor that has been missing so far to accelerate India’s recovery, and not the only thing that is missing.

Improvement in earnings

Chief Investment Strategist at Geojit Investments Ltd. V.K. Vijayakumar said in an ET report that FIIs (foreign institutional investors) were only part of the market correction. Vijayakumar said FIIs are an important piece of the puzzle that is missing, but not the only one. Another important thing that was missing was earnings growth. He said that the decline (correction) in the market since September 2024 was due to a slowdown in earnings. In fiscal year 2025 (FY25), this growth declined to 6 percent. Although it improved by 9 percent in fiscal year 2026 (FY26), it was still very low.

The situation has changed in the financial year 2027 (FY27). The results for the first and second quarters (Q1 and Q2) show that earnings have improved significantly. According to Vijayakumar, going by current trends, earnings of Nifty 50 companies could grow by around 15 per cent in FY27. He said improvement in earnings has helped foreign investors’ returns, and stability in the rupee has also provided additional support.

Will the momentum continue higher?

The recent market rally is unlikely to continue at the same pace. Shah said that the Nifty’s rise of around 13% has been very sharp. In such a situation, some consolidation in the market or intermittent profit-booking would be a good sign.

He said the rally should be seen in the context of India’s prolonged underperformance and earlier declines in many parts of the market. Whether this momentum will continue in the future will depend on whether companies’ earnings continue to rise along with improvements in foreign investment.

Shah said domestic consumption, investment in infrastructure, expanding manufacturing and a strong economic base support medium-term investment in India. Banking and financial services, capital goods, infrastructure, automobiles and consumer discretionary sectors could provide good opportunities, provided the companies’ earnings prospects look strong and their valuations remain reasonable.

These factors can have more impact

India’s valuation premium compared to other emerging markets suggests caution, especially if companies’ earnings do not meet expectations. Crude oil prices, US bond yields, dollar strength and geopolitical developments will also influence foreign investors’ investment decisions. Overall, I am positive about Indian equities heading into 2027, Shah said. But I think the next phase of the market will be more selective and based on fundamentals rather than just depending on liquidity (cash flow).

He further said that recent withdrawals by FIIs have boosted the market, but the real test will be whether corporate earnings can sustain this pace. Vijayakumar also hopes that India’s better performance will continue, but believes there is a limit to this momentum. He said profit-booking by domestic institutional investors and higher interest rates — which may include two more hikes of 25 basis points each in FY27 — could limit the market’s upside.