Podcast Summary: The Case for India’s Market Comeback

Podcast: Thoughts on the Market
Host/Speaker: Riddham Desai, Morgan Stanley Head of India Research and Chief India Equity Strategist
Date: January 14, 2026

Overview

In this episode, Riddham Desai analyzes the outlook for Indian equities in 2026 following their worst performance relative to other emerging markets in three decades. The discussion covers the drivers behind 2025’s slump, evaluates the policies and market factors forming the case for a rebound, and outlines key catalysts and risks for investors going forward.

Key Discussion Points & Insights

1. 2025’s Underperformance: Causes and Context

• Historic Slump:

  • Indian equities ended 2025 with the weakest performance relative to emerging markets since 1994 (00:20).
  • Main factors cited: mid-cycle growth slowdown, high market valuations, lack of an explicit AI trade, delays in the US-India trade deal, and India’s lower beta in the global bull market.

  “India ended 2025 with its weakest relative performance versus emerging markets since 1994. That's right, three decades.”
  — Riddham Desai, 00:20

• Recipe for Underperformance:

  • Slowing growth and expensive stocks hurt returns.
  • India’s tech sector hasn’t mirrored global AI hype.
  • US trade deal delays and global macro trends contributed to the weakness.

2. Turning the Corner: Evidence for a Comeback

• Valuations Corrected:

  • Indian market valuations have “meaningfully” corrected, likely bottomed in October 2025.

• Growth Cycle Positivity:

  • Expectations for positive surprises as growth regains momentum.

  “We think the tide is turning... India’s growth cycle looks poised for a positive surprise.”
  — Riddham Desai, 01:00

3. Policy Response: Fueled for Recovery

• Aggressive Reflation Measures:

  • The Reserve Bank of India has cut interest rates and reduced the cash reserve ratio.
  • Additional liquidity and deregulation in banking provided.
  • Government front-loaded capex and implemented a massive ₹1.5 trillion GST rate cut to boost consumption.

  “Policymakers have gone all in on reflation... The government has front loaded capital expenditure and announced a massive 1.5 trillion rupees GST rate cut...”
  — Riddham Desai, 01:30–01:52

• Improving External Relations:

  • Warmer ties with China and potential for an India–US trade deal cited as platform for recovery.

4. Evolving Macroeconomic Backdrop

• Structural Factors:

  • Reduced reliance on oil, growing exports (especially in services), and strengthened fiscal consolidation.
  • Lower saving imbalance points to lower structural interest rates and reduced volatility.

  “Reduced reliance on oil and GDP, the growing share of exports, especially in services, the ongoing fiscal consolidation all indicate a smaller saving imbalance...”
  — Riddham Desai, 02:14

• Benefits for Equities:

  • High growth with low volatility and falling rates could lead to higher price-to-earnings multiples.
  • Evidence of household balance sheets shifting into equities, with systematic flows into mutual funds.

5. Addressing Investor Concerns

• Valuations & IPOs:

  • Desai suggests more companies raising capital signals growth, not just overvaluation.

• Domestic Investment Trend:

  • Robust domestic investment supports ongoing strength in equity markets.

  “Investor concerns are understandable, but let's keep them in context. More companies raising capital often signals growth ahead, not just high valuations.”
  — Riddham Desai, 02:44

6. Tech Innovation and the AI Narrative

• AI Leadership Gap:
  • India’s lack of an explicit AI trade is a concern, but the upcoming AI summit in February may address this.
• Global Tech Position:
  • While not a leader, steps are being taken to strengthen its tech credentials.

7. Key Catalysts & Risks for 2026

• Catalysts:

  • Positive earnings revisions.
  • Further dovish policy from RBI.
  • Government reforms and potential privatization.
  • Progress on the US-India trade deal.

• Risks:

  • Slower global growth.
  • Geopolitical shifts.

  “Look for positive earnings revisions, further dovishness from the RBI, reforms from the government, including privatization and the long awaited US Trade deal. But also keep an eye on key slower global growth and shifting geopolitical dynamics.”
  — Riddham Desai, 03:20

8. The Big Question: Rerating Ahead?

• Potential Structural Shift:

  • After 15 months of pain, India could be on the verge of a “structural rerating” if growth exceeds expectations in 2026.

  “So after 15 months of relative pain, could India be on the cusp of a structural rerating? If growth surprises to the upside, and we think it will, the story of 2026 may just be India's comeback.”
  — Riddham Desai, 03:43

Notable Quotes & Memorable Moments

• “India ended 2025 with its weakest relative performance versus emerging markets since 1994. That's right, three decades.” (00:20)
• “Policymakers have gone all in on reflation...” (01:32)
• “India's once tough post pandemic economic stance is easing up and that could open the door to a major shift in how investors see the market going forward.” (01:54)
• “Reduced reliance on oil... all indicate a smaller saving imbalance. This means structurally lower interest rates ahead...” (02:14)
• “India’s premium valuations reflect solid long term growth prospects and expectations for lower real interest rates.” (02:58)
• “If growth surprises to the upside, and we think it will, the story of 2026 may just be India's comeback.” (03:43)

Important Segment Timestamps

• 00:00–00:35 – Context: 2025’s market slump and drivers
• 01:00–01:54 – Turning positive: Valuation correction, policy response, growth expectations
• 02:10–02:58 – Macro shifts: Exports, fiscal consolidation, investing trends
• 03:20–03:55 – Catalysts, risks, and prospects for 2026’s “comeback”

Summary Table

| Segment | Main Topics | Timestamps | |--------------------|---------------------------------------------|------------| | Macro Context | 2025 underperformance, key causes | 00:00–00:35| | Policy Response | RBI/govt stimulus, external ties | 01:00–01:54| | Macro Backdrop | Structural positives, investment trends | 02:10–02:58| | Catalysts & Risks | Tech, reforms, trade, global risks | 03:20–03:55|

Conclusion

Riddham Desai provides a confident, data-driven argument that India’s weak 2025 could give way to a surprising 2026 rebound. Improved policy stance, macro trends, and potential earnings surprises offer a persuasive case for renewed optimism, with a caution to watch global growth and geopolitics.

For investors and market watchers, India remains a market to watch in 2026.