05 MARCH 2026
Premium Under Pressure
Why has India’s equity premium narrowed? Indian equities (light blue line) have historically traded at a valuation premium relative to other major emerging markets e.g. China (red line) and Brazil (dark blue line). However, this premium narrowed sharply over the last 12 months after India recorded its weakest relative performance versus emerging markets in 30 years.
This is partly due to the resurgence in demand for Chinese equities, but primarily because the Trump trade war has exposed India’s trade vulnerabilities. India runs a structural current account deficit so trade disruption can quickly impact growth and financial flows.
What has changed recently? Geopolitical conditions appear to be easing. A landmark EU–India trade agreement, followed by a reset in US–India relations and reduced tariffs, has helped stabilise the external outlook and ease investor concerns.
What are the investment implications? If improving trade relations translate into stronger capital inflows and earnings confidence, India’s traditional valuation premium could begin to reassert itself.
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