There are various investment assets such as equity, debt and gold. In a given market situation—perhaps a certain level of GDP growth, inflation or geopolitical conditions—these assets behave in a certain way, giving us the basis of portfolio diversification.
However, in the current situation, all asset classes seem to be bearish. There is no place to hide, except in liquid funds or cash. This kind of situation happens once in a while. Let us make some sense of it.
Equity
Our equity market’s returns have turned negative since peaking in September 2024. There is no issue about the fundamentals of the Indian economy. It is more about relentless selling by foreign portfolio investors (FPIs) since October 2024.
FPIs sold a net ₹1.6 trillion in calendar 2025 and ₹2.2 trillion till May in calendar 2026. This is huge, leading to our equity market returns being muted since October 2024. If there was a similar scale of FPI sales 20 or 30 years ago, our market would have ‘corrected’ big time. Now, our markets are more mature. Mutual fund systematic investment plan inflows have been a pillar of support.
You may wonder why FPIs are leaving in hordes if there is no issue about the fundamentals of the Indian economy. It is about relative value and theme-based investments.
Relative value is about the price-earnings multiple in India and other emerging markets. Our PE ratio has always been at a premium to the average of emerging markets. In the current situation, FPIs invested in our market earlier at a premium PE multiple, expecting a certain EPS growth. Our corporate earnings or EPS growth has been lower than expectations. GDP growth ≠ EPS growth.
Theme-based investment is about chasing a theme. It was the Magnificent 7 (US tech and mega-cap stocks known as Mag 7) at one point, then it shifted to data centre stocks and then to semiconductor stocks. Now, cracks are visible on the semiconductor theme. Broadly, AI is the current global investment theme.
Global equity has been buoyant. Having said that, certain markets and segments are in an overbought zone. In Taiwan, with a GDP of $1 trillion, the market capitalization is $5 trillion. Of this, 40 percent is of one company: Taiwan Semiconductor Manufacturing Company Ltd (TSMC). FPIs are exiting India because we don’t have a TSMC equivalent.
In South Korea, a market that has generated superlative returns over the past year or so, the market cap is about $4.9 trillion but the GDP is $1.9 trillion. More than 50% of the market cap belongs to two companies: Samsung and SK Hynix. Concentration is a risk; when the market corrects, prices would fall like a stone rather than like a feather.
In the US, the bellwether market, the economy at $32 trillion is about 25% of global GDP, but the market cap at $78 trillion is about 50% of the global market cap. This is an overbought zone. The market cap of Nvidia alone, at $5.1 trillion, is higher than the GDP of India.
The point is global diversification is always relevant, but this is not the time to chase returns from stocks or markets that have given superlative returns over the past year. Instead, be cautious. While semiconductors/AI are the future, the stock market has taken valuation to a different level. It is a matter of time before FPIs return to India. The timing is anyone’s call.
Debt
Bond yields have moved up across markets: the US, Europe, India. The West Asia war pushed up crude oil prices, which, in turn, will spur inflation.
The markets have braced for an eventual rate hike by the US Federal Reserve and the Reserve Bank of India. The European Central Bank and the Bank of Japan have already increased interest rates. Hence, returns from bond funds have been muted of late.
Gold
Usually, in times of geopolitical tension, gold prices move up as risk-off investors and central banks move into the precious metal. That remains intact. Gold prices have corrected since the peak in February 2026 for a different reason.
The West Asia war pushed up energy prices (till the truce) and the US Fed towards an interest rate hike and, in turn, a stronger US dollar. The thumb rule is that the US Fed rate/dollar and gold prices have an inverse relationship.
Conclusion
As in cricket, even the best batters don’t score a century in every match. Sometimes they go through a lean phase. As long as the basics of the game are intact, they will come back.
Similarly, our markets are going through an unusual phase. You just have to bide your time.
Joydeep Sen is a corporate trainer (financial markets) and author