Barclays says sell-off drivers either resolved or resolving.

As geopolitical and cyclical headwinds start to fade, India, the world’s fastest-growing major economy, looks less like a warning and more like an opportunity and it is time for a second look, according to Barclays.

“The Iran deal has finally been announced. Oil fell below $80 a barrel this morning, US tech has recovered its losses from the flash crash of two Fridays ago, and bond yields are comfortably back within their range. There doesn’t seem much to do until the FOMC meeting.”

“But while the world waits for Chair Warsh’s first press conference, it is worth finally re-considering the prospects of a country that has fallen into investor disfavour for over a year, even as the global equity index has repeatedly made new all-time highs,” Baclays’ economists Ajay Rajadhyaksha and Aastha Gudwani said in a report.

The economists noted that it is unusual for the fastest-growing major economy in the world to also be the most unloved in investor portfolios. But that is where India finds itself today, they added.

They highlighted that Nifty trades at 19-19.5x forward earnings, a valuation not seen since Covid. The economy grew 7.7 per cent in the fiscal year ending in March, with the final quarter printing at 7.8 per cent — ahead of both the Reserve Bank’s and the market’s expectations.

“And yet, foreign investors have sold more Indian equity in the first five months of 2026 than across 2025. India’s weight in the MSCI Emerging Markets index has collapsed from 20 per cent at its 2024 peak to under 12 per cent. It is now the single largest underweight in global emerging market portfolios.”

“A disconnect of this magnitude between fundamentals and positioning does not come along often. The question is whether it represents a warning or an opportunity. We think it is the latter,” opined Rajadhyaksha and Gudwani.

Sell-off drivers either resolved or resolving

They observed that the market sell-off has had three identifiable drivers, each of which is either resolved or resolving.

The first is the rotation out of Indian equities into AI hardware markets elsewhere in Asia. As the semiconductor supercycle accelerated, foreign portfolio managers reallocated aggressively toward Taiwan and South Korea, where the direct beneficiaries of the AI capital expenditure boom are listed. India, which has no comparable stake in AI hardware, became a source of funds rather than a destination, the Barclays economists said.

The second driver was the Iran shock. Historically, around half of India’s energy needs have transited the Strait of Hormuz. When the Strait was effectively closed earlier this year, the impact on India was immediate and severe. The current account deficit widened , the rupee fell sharply, and the market priced in the worst.

The third was the tariff escalation under President Trump, which at its peak saw effective US duties on Indian goods reach 50 per cent, dampening the outlook for exports and foreign direct investment.

Published on June 18, 2026