Comparing Nifty 50 returns with the World Index

During the past few years, the Indian stock market was regarded as a preferred investment destination within emerging equity markets. However, by 2026, a change occurred in the performance of the Nifty 50. In the meantime, U.S. and Asian markets witnessed unprecedented upswings, the South Korea EWY ETF delivered a staggering return of 225% while the Nifty 50 struggled through a bearish period.To understand the reasons behind this divergence of Nifty 50 performance from the other global indices, it requires understanding tech cycles, re-evaluation of valuations, and capital flows by Institutional investors.Key takeaways:The Nifty 50 index has shown a correction of almost 7% by 2026.The South Korea EWY ETF is showing returns of ~225% in the 2025-26 period.Underperformance of Nifty 50 is on account of structural reasons, as it doesn't have exposure to the semiconductor manufacturing industry and was commanding premium valuations.The decline of Nifty 50 was cushioned by the capital inflows from the domestic investors and regular SIP by retail investors.Global money is flocking to semiconductor hubs like South Korea to benefit from the ongoing boom in AI hardware.Let us look into the Nifty 50 versus the global indices comparison, along with the role played by the tech cycles, the influence of the U.S. Market, and the inflow of funds by the institutional investors in more detail.Nifty 50 vs. the worldThis difference in returns between Indian and other global markets during 2025-2026 shouldn't be disregarded. The Nifty 50 has declined approximately ~7% in early 2026, while India's ticker INDA has delivered negative returns of 6.7% in the 2025-2026 period.However, unlike the Indian market's decline, the global indices are maintaining their momentum and expanding. Though the U.S. market faced setbacks with respect to the international geopolitical conflicts, it has managed to bounce back with surprising returns and break frontiers of market performance. The U.S. SPY ticker had delivered 24.7% returns over the period of 2025-2026.The resilience of U.S. markets can be attributed to its leadership in AI technology, robustness of its tech companies, resilient earnings, and certainty that American companies can generate substantial revenue from investments in AI, etc., thus protecting itself from macroeconomic shocks.However, what really caught the investors' eye was South Korea. The South Korean market has given returns of 225% via its EWY ETF over the period from 2025 to 2026. The returns generated by the SWT ETF have far surpassed other major equity markets across the globe in the given period.How did Indian ETFs perform in comparison to the Globe?When the returns for the several global equity ETFs for the 2025-2026 period were released, they revealed some surprising insights. The South Korea EWY topped the list with 225% returns, followed by Peru’s EPU AND Poland’s EPOL, 103% and 93% returns, respectively. It revealed that the gap between 1st and 2nd place was more than double due to Korea’s strategic importance in the AI revolution.While other major economic ETFs like Japan’s EWJ, China’s MCHI, the US’s SPY, and Germany’s EWG delivered returns of 37.7%, 25.9%, 24.7%, and 35.2%, respectively. While ETFs for these economies still delivered positive returns, India’s INDA posted negative returns of 6.7%.The AI hardware and memory supercycleMultiple catalysts contributed to this boom in the South Korean markets, such as its direct involvement in the AI hardware, improvement in the memory cycle, policy reforms, and flow of global investments. Whereas U.S markets are growing primarily due to strong performance by big Tech names like Google, Meta, and Microsoft.The global AI revolution is highly dependent on tangible aspects like the GPUs, data centres, advanced memory, and semiconductor supply chain, which only a few companies specialise in.Samsung Electronics and SK Hynix are among the major companies that are capitalising on this high-bandwidth memory (HBM) supercycle and are at the forefront of the AI trend. SK Hynix recently invested 19 trillion Won in a project for an advanced packaging plant. These are both South Korean companies; therefore, this AI boom is directly benefiting the Korean markets.However, other stock exchanges also saw growth as global investors began moving into undervalued markets. Markets such as Peru, Spain, Greece, Brazil, Poland, Austria, Colombia, South Africa, and Chile gained on lower valuations, currency strength, high commodity exposure, reforms, and exceptions to rate cuts. For example, Taiwan gained for the same reason as Korea, which was the semiconductor exposure. Japan and some European countries saw growth driven by governance reforms, higher shareholder returns, and lower valuations.As Indian firms are not involved in semiconductor manufacturing or AI hardware. Hence, the Nifty 50 did not benefit from this AI wave.The India premium reset and governance reformsThe second key reason for this divergence is the corporate reform and the lower valuation of the Korean markets. Korean equities were undervalued for many years, mainly due to issues like a lack of minority shareholder protection, governance issues, low payouts, and a complex chaebol structure.Now, due to the Corporate Value-Up Program, the country has seen enhanced capital efficiency, which has resulted in a significant valuation re-rating.Today, the global investors are looking for markets with strong profit potential and access to the AI Hardware Cycle. While the Indian stocks were overvalued since the start of the year relative to most of the emerging markets. This premium valuation was backed by a strong DII inflow and stable economic growth. Due to India's corporate earnings growth slowing over the past few quarters, along with price correction, these premium valuations started to raise questions among global investors.FII outflows and global triggersIt is not only domestic factors that matter; capital flows are just as important. FIIs have remained net sellers in India for months in the 2025-2026 period. The following macroeconomic developments prompted their exodus from India:Currency volatility: The Indian Rupee was experiencing volatility as it was trading near the 90-mark against the US Dollar. A depreciating currency eats into the dollar-denominated returns of foreign investors, thereby triggering a negative feedback loop of selling.Geopolitical tensions: The escalation of conflicts in the Middle East, especially the Strait of Hormuz crisis, has increased global crude oil prices. As India relies on imported oil to meet more than 80% of its crude oil needs, the instant reaction to increasing oil prices was fear of domestic inflation and fiscal strain.Shifting global yields: As the attractive returns were offered in tech-heavy Asian markets and stable yields in the US, FIIs shifted their portfolio tactically out of expensive Indian equities.Looking aheadEven though there is clear underperformance by the Indian markets in the near term, there is a relative opportunity cost, not a collapse of its long-term story. DIIs and retail participation with constant SIPs have provided a buffer to Indian markets, saving them from a much steeper collapse.According to market analysts, this cooling-off period is fundamentally healthy. The squeeze in valuation premiums is making Indian stocks again attractive for the long term, as the valuation spread has narrowed. However, this market phase also highlighted a shift in investment strategy. Investors are now shifting from generic global diversification to theme-led and country-specific diversification. Today, Indian investors want to get access to specific global supply chains that the domestic market lacks, such as AI chips, defence, energy transition, semiconductors, robotics, and advanced manufacturing. Therefore, this underperformance of Indian indices should be read as an opportunity cost and not a failure of its long-term structural growth story. ConclusionThe divergence between the Nifty 50 and global indices in 2026 is not a sign of systemic failure in the Indian economy. Rather, it is due to market rotation. Global capital chased the high-growth AI and semiconductor themes in markets like South Korea and the US while simultaneously resetting the stretched valuations in India. To market participants, this stage highlights the need to learn how to interpret global macroeconomic cycles and the need to realise that even the most robust bull markets must have some consolidation in between to ensure long-term growth.

Comparing Nifty 50 returns with the World Index

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