Since the US President issued an order to restructure the H-1B visa program, which may potentially disrupt India’s $280 billion software services sector, the MSCI India Index has declined in each of the five sessions.
Call it a case of Indian stock bulls’ poor timing. The market was beginning to show signs of recovery when Donald Trump delivered two more blows to investor morale.
Since the US President issued an order to restructure the H-1B visa program, which may potentially disrupt India’s $280 billion software services sector, the MSCI India Index has declined in each of the five sessions. Indian pharmaceutical companies participated in a selloff that swept Asia on Friday as a result of his proposal to levy a 100% tariff on branded or copyrighted medications.
The MSCI India indicator had been rising for three weeks in a row before these shocks, gaining more than 4% during its strongest run since May.
Trump’s most recent attacks have also alarmed international investors, who seemed to be finally adjusting to the punitive 50% US tariffs on India that have strained ties between the two countries. After buying Indian equities for two weeks, international funds recently sold them.
Increasing tensions between the US and India put more strain on the situation, according to Jian Shi Cortesi, a portfolio manager at Zurich’s GAM Investment Management. “The associated headlines provide investors one more push to shift their investments from India to economies with more momentum, including China and South Korea.”
After a six-year surge, Indian equities have failed to maintain their momentum in 2025 due to a slowdown in economic development and the pace of corporate profits expansion. After outperforming a larger measure of Asian stocks from 2021 to 2024, the MSCI India gauge has increased by just 2% this year, falling more than 19 percentage points behind it.
Resetting Expectations
The central bank’s continued focus on growth, Prime Minister Narendra Modi’s earlier decision to lower the national consumption tax, which went into effect on September 22, and bets that the resumption of trade talks with the US will result in a favorable outcome all contributed to investors’ hopes for a year-end stock rally.
Trump’s most recent acts have led to a reconsideration of such assumptions.
This week’s almost 3% drop in the MSCI India measure was the largest since February. Over the course of five sessions, a measure of IT stocks fell 7.9%, the highest since April. The MSCI index gives the tech sector the third-highest weighting, at around -10%.
Indians had previously accounted for almost 70% of H-1B visas. The visa modifications run the danger of reducing remittance inflows and depreciating the local currency, which is already one of Asia’s poorest performing currencies, according to economists. Amid concerns that India’s services exports may suffer alongside its tariff-hit product exports, the rupee fell to a record low on Tuesday.
Following Trump’s most recent tariff attack, an index of pharmaceutical companies saw a daily decline of more than 2% on Friday, marking its worst performance since early August.
Udith Sikand and Tom Miller, analysts at Gavekal Research, stated in a report that the underperformance of Indian asset markets seemed certain to continue. “India’s economic growth is more likely to fall short the longer the 50% tariffs are in effect.”
In 2025, foreign investors sold around $16 billion worth of Indian equities on a net basis. With a record exit of $17 billion in 2022, that is on course to become the second-largest outflow in history. Without the robust equities purchases by regional institutions, the market’s performance this year would have been far worse.
“Silent Corner”
HSBC Holdings Plc strategists are among the more upbeat market observers. Herald van der Linde headed a team this week that changed their neutral position on Indian equities to overweight.
“India is Asia’s peaceful corner, in sharp contrast to the bustling commerce in Korea and Taiwan,” they said. “The majority of foreign funds are weakly positioned, government policy is starting to favor stocks, valuations are no longer an issue, and profits growth forecasts may drop a bit lower.”
According to statistics published by Bloomberg, the MSCI India measure is now trading at 21.8 times its 12-month forecast profits, down from a multiple of 24.5 a year ago.
Investors generally agree that geopolitics will continue to shape the near-term outlook for Indian stocks, especially with regard to foreign inflows. Adding exposure to domestically oriented industries like consumer and finance, which are less susceptible to Trump’s America First policy, is something that Allspring Global Investments is doing.
Additionally, for the first time in a month, hedging expenses for Indian stocks increased this week. The National Stock Exchange of India Ltd.’s 30-day forward volatility measure ended above its 50-day moving average on Friday, indicating that traders are preparing for more market volatility.
The Global CIO Office’s CEO, Gary Dugan, said that if geopolitical tensions with the US worsen, he will move his portfolios toward China and perhaps Latin America.