After a tumultuous year marked by historic foreign investor withdrawals, Indian stocks may be on the cusp of a rebound, with positive signs emerging amid geopolitical uncertainties and renewed investor interest in the country’s long-term growth prospects.
Indian equities may be entering a new phase of recovery after a bruising stretch that pushed foreign investors to the exits, according to VanEck, which says the market’s long-term case still looks intact despite geopolitical uncertainty. Alice Shen, a portfolio manager at the global asset manager, said India had been “unloved for the past few years” but remained one of the few major markets offering international investors a clear alternative to the artificial intelligence trade. That diversification appeal, she argued, is becoming more important as markets reassess how much of this year’s rally has been built on AI enthusiasm rather than broad-based earnings strength.
The recent reversal in sentiment has been stark. Overseas investors sold about $25.9 billion of Indian equities in calendar 2025, the biggest annual outflow on record, after withdrawing $10 billion in the first four months of this year. But June brought tentative signs of a turn: the Nifty 50 outperformed the MSCI Emerging Markets Index by its widest margin since November, while foreign outflows eased to their lowest level in four months, suggesting investors were beginning to rebuild positions after a period of heavy underweighting.
Part of the pullback had been driven by a shift in global capital toward China when stimulus measures triggered a late-2024 rebound in Chinese shares. Many investors who had preferred India while limiting exposure to China cut back Indian holdings as Chinese markets surged. Even so, VanEck says India’s underlying growth story remains persuasive. Shen pointed to gross domestic product growth of 7.8% year-on-year in the second quarter, above both the 7.3% market consensus and the Reserve Bank of India’s 7% forecast, alongside bank credit growth of 19.1% in August, led by lending to small and medium-sized enterprises and corporates.
The case for Indian stocks has also been supported by a broader record of resilience. According to market data cited by Livemint, the Nifty 50 rose more than 19% in 2024, beating the previous year’s gain and ranking among the strongest major stock indices globally. VanEck has separately argued that India’s growth has been reinforced by digitalisation, structural reform and policy continuity, with the market outpacing broader emerging-market benchmarks for four consecutive years. Within that universe, Shen said the small-cap segment looks particularly attractive, with expected earnings growth of around 33% over the next 12 months, and highlighted names such as Netweb Technologies and Hindustan Copper for their forecast profit momentum.
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