India's underperformance vs global markets about to end: Seshadri Sen

With a GST 2.0-led demand recovery expected in the Indian economy, Seshadri Sen, head of research and strategist at Emkay Global sees the period of stock markets's underperformance coming to an end

India's equity markets have lagged global peers in 2025 despite a resilient macro backdrop. Going forward, however, SESHADRI SEN, head of research and strategist at Emkay Global Financial Service expects India's underperformance to end amid GST 2.0-led demand recovery. In an email interview with Nikita Vashisht, he shares the triggers for a turnaround and where the next wave of market leadership may emerge. Edited excerpts:

 

Despite India's strong macro story, equity markets have lagged global peers this year. Why, and what's the road ahead?

India bore the brunt of twin-tightening in FY25 -- both fiscal and monetary impulses were contractionary. As a result, the earnings cycle was considerably weak and the Nifty delivered a weak 3 per cent earnings per share (EPS) growth. Given that India trades at premium valuations of ~20x one-year forward price-earnings (P/E) ratio, the lack of growth support triggered a significant selloff as global investors sought more attractive destinations.

 

We are, now, at the end of this period of underperformance. We expect a strong consumption recovery driven by multiple stimuli: improved welfare spending, significant monetary easing, and now the GST cuts. The earnings cycle is also recovering and we see the possibility of upgrades for FY26/FY27.  

 

Do you think Indian investors should increase their overseas exposure to hedge the sluggishness in domestic equities? How can they do that if MF's overseas investment options have been curtailed?

As a matter of prudence and diversification, investors should have some overseas exposure in their equities portfolio. This, however, should not be done tactically as global equities cycles are hard to predict, and trying to time the market can backfire. It is a challenge, however, as overseas investment options are now limited given that mutual fund exposures are capped.

 

Are the markets being overoptimistic about a breakthrough in US-India trade negotiations? How should investors rejig their portfolios in this backdrop?

It is difficult to predict how long these tariffs will last. The direct impact on the markets is limited, as the affected sectors like textiles and jewellery are largely outside the listed markets. If the tariffs continue, there may be a second-order impact on mass consumption in FY27, but it is too early to predict that definitively.

 

Are there any high-conviction contrarian bets in this market that Street may be overlooking?

Overall, our biggest 'overweight' is consumer discretionary. Our key themes are Internet companies, EMS and air travel.

 

Do you think consensus estimates for FY26 earnings are too optimistic, or does corporate India still surprises up its sleeve?

Consensus FY26 earnings are now realistic with the implied growth for the rest of the year at ~10-11 per cent. There is still a dependence on a consumption revival in H2, and the festive season acquires huge importance in this context. If global commodities soften on the back of a slowdown in Western economies, then we could see some upward revisions too.

 

Where do you see the next wave of leadership emerging in Indian equities?

We see the next wave of leadership coming from select manufacturing sectors and new age digital platforms.

 

Manufacturing: The increased autarky in the global economy will trigger onshoring of production in many categories, assisted by constructive government policy and some level of protection. EMS is one obvious sector that stands out, but we see many opportunities in auto ancillaries, power equipment and other capital goods and even consumer durables. New age digital platforms: these businesses will continue to disrupt incumbents, and many of these companies have a long growth runway ahead. The sector is increasingly focusing on paths to profitability, away from pure land grab – this helps valuations. We remain structurally constructive.

 

What risks do you think investors are underestimating right now?

First, employment remains a challenge, especially with the technology sector facing near-term headwinds. We, however, think that the growth in new-age manufacturing, accompanied by a medium-term revival in the tech sector, should address this.

 

Second, the aggressive trade positions of the US and other countries could trigger a deeper recession than is currently factored in – this could trigger a sharp correction in global equities and India would not be immune.