India vs Emerging Markets
A recent comparison of the Indian market with Asian emerging markets shows an interesting trend. The data compares the India index with the EEMA emerging market index, with both shown in US dollars. A ratio chart has been used to compare the performance of India against other emerging markets. This chart is now showing a level that has not been seen for around 12 years.
A 12-Year Low
The India versus emerging markets ratio has fallen to around 0.42 from nearly 0.85. A similar level was seen around 2013-14 and again during the COVID period in 2020. When this ratio falls, it means other emerging markets are doing better than India. Since around mid-2024, other emerging markets have performed better than the Indian market. This has pushed the ratio down sharply over the last two years.
What Happened Before?
The important part of this data is what happened after the ratio reached similar low levels in the past. Both previous times, the Indian market went on to give strong dollar returns over the next one year. The returns were around 64% on one occasion and around 45% on another occasion. This does not mean the same returns will happen again, but the past pattern makes the current level worth watching.
Could India Perform Better Again?
If the Indian market starts moving up again, there is a good chance that India could perform better than other emerging markets. The reason for the next market rise could be anything, such as a new market catalyst or a change in investor sentiment. But if the market starts a fresh upward move from these levels, India may have room to catch up with other emerging markets.
A Positive Support Point
This ratio chart does not guarantee that the market has already made a bottom. However, it gives an important support point for Indian investors to watch. India has underperformed other emerging markets for about two years, and the ratio is now at a very low level. Based on the earlier periods, the chances of a recovery could be higher from here, while the risk of another large fall may be lower.
What Could Happen Next?
The key thing to watch now is whether the Indian market can start a new upward move. If that happens, this data suggests that India could once again do better than other emerging markets. For investors, the India versus emerging markets ratio can therefore be an important chart to track. It may give an early signal about whether India’s relative performance is ready to improve.
