Indian Stocks' 30-Year Low vs Emerging Markets: Rupee Crash, US Tariffs Drag MSCI Index Amid Surge

 Domestic stock markets have recorded their worst relative performance in nearly three decades in the emerging market space so far in 2025, according to a report by global brokerage firm Jefferies.
According to the report, Indian equities have significantly underperformed their Asian and emerging market peers this year.  The MSCI India index is up only 2.2 per cent in US dollar terms on a total-return basis year-to-date. In sharp contrast, the MSCI AC Asia Pacific ex-Japan index has gained 25.9 per cent, while the MSCI Emerging Markets index has risen 29.9 per cent during the same period.

It stated "Indian stock market has suffered its worst relative performance in 30 years so far in 2025 in both an Asian and emerging market context". Jefferies noted that this weak performance reflects a broader cyclical slowdown in the Indian economy. 

The report pointed out that earnings growth for MSCI India companies has moderated, with earnings growth now estimated at around 10 per cent for FY26, ending March 31, 2026.This marks a clear deceleration compared to the stronger growth seen in previous years.

Another major factor weighing on market performance has been the depreciation of the Indian rupee. The currency has weakened by 5.3 per cent against the US dollar so far in 2025, breaching the psychologically important 90 level in December. Jefferies admitted that the extent of the rupee's weakness has come as a surprise. While there is hope that the current levels could mark a bottom for the currency, risks remain.

It stated "has to admit to a certain surprise over the extent of the currency's weakness. The hope is that this is the bottom as regards the rupee". One key risk highlighted in the report is the continuation of 50 per cent tariffs imposed by the United States on India since August. 

Despite ongoing hopes for a trade deal, these tariffs remain in place. Jefferies warned that if the tariffs continue, they could further widen India's trade deficit. The country's trade deficit rose 11.3 per cent year-on-year to a record USD 282 billion in the first 11 months of 2025.

The report also addressed the impact of the weaker rupee on India's competitiveness. While a softer currency typically helps exports, Jefferies said the rupee is still not particularly cheap when viewed over the long term. The real effective exchange rate has fallen about 11 per cent from its peak in November 2024 and is currently at an 11-year low. However, it remains 12 per cent above the low seen in September 2013, based on data from the Bank for International Settlements.

Overall, Jefferies said India's stock market performance in 2025 reflects a combination of slowing earnings growth, currency weakness, and external trade pressures, making it one of the weakest-performing markets among its emerging market peers this year.