Series 134 – India vis-à-vis Emerging Markets – What the cycle is signalling

Mean reversion is one of the most reliable patterns in markets. When something performs far better or far worse than usual, it eventually moves back toward normal. The Nifty’s USD performance versus Emerging Markets shows this clearly over the past 20 years.

Strong outperformance phases have always cooled off, and sharp periods of underperformance have almost always been followed by a rebound. Today, India is trailing EM by nearly 20 percent on a one-year basis, making it one of the deepest drops in the chart.

Historically, readings this stretched have appeared near the end of the cycle, not the beginning. As valuations settle and foreign flows stabilise, relative performance tends to move back toward its long-term range. That is why the current setup points to a favourable phase for India going forward.

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