Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
This article is featured in the Q3 2026 Future Strategist newsletter, you can read the rest of the newsletter here.
Through a conventional offshore lens, India has been an underwhelming market this year, with MSCI India down 8.5% in local terms, or 14.6% in US dollar terms, over the first three quarters. The global backdrop has not helped. In a year dominated by a narrow technology-hardware rally and resurgent oil prices, India has not been the obvious place to look for momentum. Nor have the old heavyweights helped: IT services, HDFC Bank and Reliance have each been major drags in 2026.
Yet this index-level weakness sits oddly against recent company interactions, including a week on the ground in September. Across multiple sectors, management teams were not describing a stagnant opportunity set, but one where order books, earnings expectations and addressable markets were expanding. The more interesting development is not simply domestic growth, which remains robust while not especially headline-grabbing, but the emergence of export opportunities, data centre and renewable-power demand, and domestic categories being reshaped by technology and new distribution models.
This divergence is visible in the market data. The Nifty Midcap 100 and Nifty Smallcap 100 have outperformed MSCI India materially this year, while over three and five years midcaps have compounded at roughly 20-22% per year, about twice the rate of the headline indices. More tellingly, the headline index is in a downtrend, but much of the market is not. As of early October, only around a third of MSCI India members were above their 200-day moving average, compared with more than half of the buyable universe outside the benchmark. Across all buyable companies, nearly three-quarters had beaten the Nifty 50 year-to-date. This is not an argument that small caps always outperform – they do not – but it is a clear sign that recent India performance has been far more dispersed than the benchmark suggests.
It would be incorrect to say that the benchmark has not evolved. MSCI India has broadened from 68 companies in 2005 to 165 today, with the top 10 falling from 57% of the index to 34%, and the combined weight of IT and Energy falling from 38% to 15%. The opportunity set beneath the benchmark has broadened faster still. The buyable universe of Indian companies above US$500 million market capitalisation has expanded from 351 a decade ago to 893 today, of which 728 sit outside MSCI India. The index captures about two-thirds of market value, but only around one in five investable companies. For foreign investors, who generally access India through funds or ETFs rather than directly owning the local universe, this distinction matters.
This is not merely a theoretical complaint about benchmark construction. Of the 866 companies that entered the investable universe over the past decade, only 48 later entered MSCI India. For those that did, the median wait was around two and a half years. Strikingly, those eventual entrants had already outperformed MSCI India by a median 49% before joining the index, while the first year after inclusion delivered only 4% median outperformance. The lesson is not that every non-index company is attractive; the typical new entrant actually lagged the index. The point is that outcomes are wide, the winners are powerful, and the index often gets to them late.
Nor is the difference only one of size. MSCI India remains heavily weighted towards the growth giants of previous decades: banks, oil and gas, IT services, autos and telecoms. These five industries are over 40% of the benchmark, but less than 9% of the buyable universe outside it. Away from the index, the market is much more spread across capital markets, machinery, chemicals, auto components, pharmaceuticals and metals. That is closer to the India we have been seeing in recent meetings: not just large banks and IT services companies, but emerging exporters, component suppliers, renewable-power providers, data centre infrastructure companies and businesses gaining share in fragmented or newly forming domestic categories.
The clearest example is the export and supply-chain opportunity. India has long been straightforward to understand as a demand story but historically captured far less of the high-end manufacturing value chain than its population, engineering base and domestic market might suggest. This is beginning to change. Last quarter’s article used aerospace as the test case: an industry where parts are made to tolerances measured in microns, using materials such as titanium and Inconel, and where suppliers must clear long qualification processes before being trusted with meaningful work. The more recent company visits suggested this is broadening. At Sansera and JK Maini, the discussion was not about cheap labour, but 5-axis machining, specialist alloys, semiconductor-equipment components, aerospace parts, customer approvals and qualification cycles. Global OEMs (original equipment manufacturers) are not looking at India only because it is cheap. They need capacity, diversification and technical capability at a time when China is more expensive and geopolitically awkward, while European industrial capacity is often either uneconomic or increasingly pulled towards defence.
The useful stockmarket point is that this is not confined to one aerospace supplier. Belrise is moving from 2-wheeler structural components into higher-value systems, 4-wheelers and aerospace. ASK Automotive is a domestic 2-wheeler supplier, but the debate is really content per vehicle, alloy wheels, electric 2-wheeler content and customer scale, not simply the scooter cycle. Jindal Stainless is a materials example: stainless demand in India is structurally stronger than ordinary steel and tied into infrastructure, transport, elevators and other formalising end markets. These are very different businesses, but the common thread is the same: qualification, customer embeddedness and process capability matter as much as headline volume. Once a supplier is qualified for one part, the next part becomes easier.
A second version of the same point is appearing in technology infrastructure. India does not look like an obvious beneficiary of the global AI boom if one looks only at the benchmark. Its traditional technology exposure is still largely IT services, where AI may prove as much a deflationary risk as a growth driver. But AI and cloud are not only software stories; they are also physical infrastructure stories. They require data centres, fibre networks, reliable power, cooling, land, grid access and renewable energy. Meetings with HFCL and Sterlite framed optical fibre less as a conventional telecom capex cycle and more as a data-centre and hyperscaler supply-chain constraint. CleanMax speaks to the power layer: it sees India data centre load rising from around 1.5GW today to 5.5GW by FY2030, requiring a large associated build-out of renewable power and storage. This is a very different technology story to the one investors normally associate with India: not exporting code, but building the physical infrastructure needed for the next phase of digital growth.
The domestic opportunity has also become more specific. India’s consumer story remains powerful, but it is no longer enough simply to own broad consumption. Growth across the economy is solid, but not spectacular enough to lift every incumbent equally. The companies standing out are those with something extra: a new distribution model, a category shift, a data advantage, or a way to take share from fragmented competition. Lenskart is not just an eyewear retailer; it is using remote eye tests, centralised manufacturing and location analytics to change how a low-penetration category is served. Nykaa is not simply online beauty; it is a specialist retailer with brand access, stores, owned brands and marketing services. Eternal is not just food delivery; Blinkit is one of the clearer examples of quick commerce moving from a GMV (gross merchandise value) story to a unit-economics debate. The consumer opportunity has not disappeared; it has become more segmented, and therefore more stock specific.
This does not mean everything outside the index is attractive. The opportunity set is wide, but so is the range of outcomes. Many small and mid-cap shares are expensive, and plenty of companies with strong narratives will fail to convert growth into cash returns. The point is rather that the Indian market is changing faster than the benchmark can reflect. For investors willing to look below the headline index, the attraction is that many of the better opportunities are not simply dependent on India’s baseline macro growth. They are tied to companies capturing emerging export opportunities, qualifying into global supply chains, or reshaping domestic distribution networks in ways that can generate growth well above the broader economy.
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Key risks
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
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