Developed markets outpace India in growth and returns, says Waterfield Advisors expert

Developed markets now offer higher economic growth and return on equity than India, drawing foreign capital away, according to Riddhiman Jain of Waterfield Advisors. Jain, who serves as Managing Director and Head of Investment Strategy and Solutions, pointed out that foreign portfolio investors have pulled a record nearly 3.1 lakh crore rupees from Indian equities this year.

What Happened

India's Nifty index is down about 13% year-to-date after facing multiple pressures, including US tariffs, the West Asia war, crude oil prices, the anti-AI trade, and rupee volatility. In contrast, nominal GDP growth in the developed world has risen over the last two years while India's growth has stayed flat or slipped. Three main forces drove that trend: AI-led spending in the US, corporate rejuvenation in Japan, and fiscal expansion in Germany.

Market Outlook

Despite the broader index struggles, stock-specific opportunities in power, defence, and autos remained immense. Asset allocation helped anchor absolute returns through tools like REITs, InvITs, performing credit, private equity, and gold. Looking ahead, Q2 and Q3 are key periods to watch for inflation since the first quarter showed little to no impact from oil prices. Margins remain a vital variable, and the upcoming base effect from Q3 could temper corporate earnings growth.

Sector Performance

The IT sector recently recorded its best week since 2008 as the anti-AI trade unwound and Q2 margins beat fears, though a weaker rupee provided much of that boost while volume growth has yet to recover. Domestic themes look the strongest moving forward, supported by last year's tax cuts and GST rationalisation boosting purchasing power, along with capex-intensive areas like hospitals, manufacturing, and the power value chain.

Context

Foreign capital constantly shifts between emerging and developed economies depending on relative growth rates, interest rate differentials, and currency stability. When developed markets show stronger momentum, global funds often reallocate capital away from markets like India to capture higher returns.