The iShares MSCI India ETF (INDA) has slumped 12% year-to-date, trailing its broader emerging markets counterpart by more than 30 percentage points as soaring oil prices and a global AI-driven tech rally leave the nation’s equities behind.
"You can’t ignore India’s demographic picture,” said Chris Gannatti, WisdomTree’s global head of research, referring to the country’s median age of 28 and its increasingly educated, upwardly mobile population. “It’s probably the best singular demographic picture worldwide.”
The divergence is stark: while the $29 billion iShares MSCI Emerging Markets ETF (EEM) is up 18.7% in 2026, its $6.7 billion India-focused peer returned just 2.5% in 2025 before this year's decline. The underperformance was exacerbated in March when the fund fell 10% as the Iran war caused Brent crude to surge over 60%, hitting the world's third-largest oil importer.
The key question for investors is whether India's powerful domestic consumption story can overcome the macroeconomic headwinds. With a population of 1.5 billion and GDP growth over 6 percent, the long-term thesis is compelling, but a widening current account deficit and over $20 billion in foreign outflows create significant near-term risks.
A Tale of Two Markets
India’s recent underperformance stands in sharp contrast to other emerging markets that have benefited from the artificial intelligence boom. According to Malcolm Dorson, lead manager of the Global X India Active ETF (NDIA), a significant portion of emerging markets asset flows have been captured by Taiwan and Korea. Semiconductor giants like Taiwan Semiconductor Manufacturing, Samsung Electronics, and SK Hynix now account for 26% of the MSCI emerging markets index, with each stock soaring more than 100% in the past year.
This has left India, an economy driven more by internal demand than exports, on the sidelines. "The domestic local story is critical, in our opinion,” Gannatti said. “The reason India is growing at 6% is not exports. India is a consumption-based economy, similar to the U.S.”
The Balance of Payments 'Stress Test'
The external pressures on India are significant enough for the country's chief economic advisor, V Anantha Nageswaran, to call the situation a “live balance of payments stress test.” India imports nearly 90% of its crude oil, making it highly vulnerable to price shocks. The rupee has weakened by over 5% since the conflict in Iran began, making those imports even more expensive.
This has strained the nation's finances. Foreign portfolio investors have withdrawn more than $20 billion from Indian equities since the conflict's outbreak. Economists now project India’s current account deficit could widen to 2.5% of GDP in fiscal 2027, up from 0.9% in the previous year, according to a Reuters report. Net capital inflows, which averaged 2.6% of GDP between 2015 and 2019, have nearly disappeared.
This environment has led some investors to seek active management to navigate the cross-currents. Funds like the Goldman Sachs India Equity ETF (GIND) are focusing on specific pockets of the domestic economy. "We continue to like financials and also have a good overweight in consumer-discretionary companies," said Basak Yavuz, the fund's co-manager, noting a focus on wealthy consumers "who would be able to deal with high oil prices in a much better way."
A prime example of the domestic thesis is Amber Enterprises India, an air-conditioner manufacturer. Yavuz points out that household AC penetration in India is under 10%, compared to a global average of 30%, and is projected by the government to reach nearly 50% by 2037.
This article is for informational purposes only and does not constitute investment advice.
