The benchmark Nifty Index has fallen about 2 per cent so far this year in contrast to key global indices such as the US’ S&P 500 and Dow Jones (DJIA), Europe’s Euro Stoxx 50 (Euro Stoxx), Japan’s NIKKEI and China’s Shanghai Composite (SHCOMP), which are up anywhere between 1.5 and 8.5 per cent. However, despite the lacklustre performance in 2023, Nifty-50’s positive divergence from global indices, seen since 2020, is still intact. In this period, Nifty has clocked annual average returns of about 10 per cent against 1.8-6.7 per cent returns by other global indices.

What’s driving this outperformance and what’s in store ?

Underdog in 2010-2020

To recall, Nifty had similarly outperformed global indices in 2005-09. Nifty-50’s annual returns averaged 31.3 per cent in 2005-09, compared with 1.3 per cent for S&P 500 in the same period, leading to 29.9 per cent outperformance by Nifty-50. The same outperformance was seen against DJIA, Euro Stoxx, and NIKKEI at 29.7, 27.6, 28.6 per cent, respectively. But then, Nifty-50 converged with global indices as recovery from global financial crises was marred by issues such as surge in NPAs in the banking system, high inflation in the early part of the decade. Demonetisation and GST implementation also impacted earnings growth for a short period in this decade.

This underperformance of Nifty in 2010-2020 vs global peers may have provided a favourable base for reporting strong growth following Covid now. Besides, rebound in demand for product and services from the Covid lows internationally, and supply disruptions from China/Europe have turned the tide in favour of India.

What’s in store ?

Ultimately, markets ride on earnings and this was evident in 2005-09 where Nifty-50 earnings growth outperformed S&P500, DJIA, Euro Stoxx, NIKKEI and SHCOMP by 23.2, 19.5, 22.4, 23.9, and 11.9 per cent, respectively. However, unlike other indices, the SHCOMP Index outperformed the Nifty in this period. This reflected a period when China’s emergence overshadowed the India growth story, even as the developed economies struggled with global financial crisis.

The current slip-up in the year-to-date index movement has, to a certain extent, been due to Adani-Hindenburg saga and this may continue to weigh on the Nifty-50 in the short-term. However, future convergence or divergence of the Nifty with the global indices will depend upon what happens on the earnings front. As of now, issues of corporate overleveraging have cropped up in some pockets; persistent inflation has also tempered earnings growth in Q3FY23. The coming earnings seasons need to be watched closely for a clue on the direction of the market.