Indian equity markets have staged a sharp reversal from their year-to-date underperformance, emerging as among the strongest-performing markets globally in November. The Nifty has gained over 10 percent during the month, while the Sensex has advanced approximately 10.5 percent, outperforming major equity benchmarks across Asia, the United States and Europe.

The recent performance indicates a shift in global investment preferences, with investors rotating away from markets that benefited significantly from the artificial intelligence (AI) hardware boom towards relatively underperforming markets such as India.

Across a three-month period, the Nifty has gained approximately 4.71 percent, while the Sensex has advanced 10.43 percent, according to the reported comparison. Indian equities have remained among the few markets delivering positive returns during this period. Over six months, India has been accompanied by the US and European markets in positive territory.

The divergence is particularly visible in November, with Taiwan's stock market and South Korea's KOSPI emerging among the biggest laggards. Both markets had previously benefited significantly from strong investor demand for semiconductor manufacturers and companies linked to AI infrastructure.

However, the one-year performance presents a different picture. The Nifty has declined 5.70 percent over the period, making it the weakest performer among the nine indices compared. In contrast, the Nasdaq Composite has gained 10.44 percent, the MSCI Emerging Markets index has advanced 12.97 percent, South Korea's KOSPI has surged 40 percent, and Taiwan's TAIEX has climbed 44.71 percent.

Consequently, the Nifty continues to trail the KOSPI by approximately 45.7 percentage points and the TAIEX by 50.41 percentage points over the one-year period. The recent recovery has narrowed this performance gap, although it has not completely reversed India's relative underperformance.

Foreign portfolio investors (FPIs) have also started returning to Indian equities. After several months of sustained selling, FPIs invested Rs 53,740 crore during the first nine trading sessions of November. The renewed buying follows a period in which India's weight in the MSCI Emerging Markets index and its active allocation among global funds had remained near multi-year lows.

Foreign ownership of Indian equities had also declined to a 14-year low of 15.57 percent by the end of September, highlighting the extent of foreign investor withdrawal from the domestic market.

An important factor behind India's recent relative resilience is its limited exposure to the AI hardware investment cycle. Unlike South Korea and Taiwan, which have substantial listed semiconductor and technology hardware companies, India has relatively little direct exposure to chip manufacturing, servers and other AI infrastructure businesses.

While this limited exposure appeared to be a disadvantage during the global AI-driven rally, it may now be providing some insulation as investors reassess valuations and rotate capital away from markets that witnessed substantial gains.

The combination of improving foreign investor flows, relatively attractive valuations following the correction and changing global investment preferences has supported the recent recovery in Indian equities. However, the one-year performance gap indicates that the domestic market is still recovering from its earlier underperformance.