The Nifty 50 has ended its run of weekly losses, but stronger Indian earnings may struggle to overcome foreign selling, rising yields and the pull of US technology stocks.
India’s Nifty 50 has finally halted a bruising run of weekly losses, but the market’s brief respite has done little to settle the larger question hanging over investors: can Indian equities outperform Wall Street next year, or will the S&P 500 keep widening the gap? Foreign investors have continued to pull money out of Indian shares this month, even as the benchmark recovered a fraction of its recent losses, underscoring how uneasy sentiment remains amid tighter monetary policy, expensive crude and a stronger pull from US assets.
The answer will depend less on headlines than on earnings. India’s reporting season has begun with a solid showing from Tata Consultancy Services, which posted double-digit growth in both profit and revenue for the latest quarter, beating market expectations. Kotak Institutional Equities expects the Nifty 50’s aggregate profits to rise sharply in the second quarter and sees index earnings per share advancing further in the next two financial years. That would normally support a stronger market, but the index has already struggled to translate profit growth into share price gains.
By contrast, US earnings momentum is being driven by the technology and artificial intelligence trade, with Goldman Sachs saying AI-related infrastructure stocks are expected to make up more than half of the S&P 500’s earnings growth in the current quarter. Nvidia and Micron are seen as major contributors to that expansion. Even so, valuations are no longer stretched by recent standards: Goldman says the S&P 500’s forward price-to-earnings ratio has eased to around its long-run average. Kotak’s estimates put the Nifty on a lower forward multiple than the US benchmark, suggesting Indian shares are cheaper on paper, even if that has not translated into superior returns.
The foreign flow backdrop also matters. Economic Times reporting from previous bouts of selling shows overseas investors have tended to trim Indian exposure when US bond yields climb, crude prices rise and geopolitical risks intensify. That pattern helps explain why the Nifty can remain under pressure even when domestic earnings improve: global capital is often comparing India not just with its own history, but with the scale and speed of profit growth available in the US market. For now, the Nifty’s challenge is not only to keep recovering, but to persuade investors that earnings alone can overcome the attraction of Wall Street.
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