The Indian equity market has probably seen one of its worst performances this year, making it one of the weakest major emerging markets. The nation’s equity benchmark index, Nifty 50, has managed a modest increase of around 5% year to date, lagging far behind the rallies seen in many of its Asian peers, with some even surging more than 30%. This comes in sharp contrast to the 22% gain that the Nifty 50 witnessed last year.

However, the tide seems to be turning, which must have led Goldman Sachs to reverse its October 2024 downgrade. The global brokerage firm now projects the Nifty 50 to hit 29,000 by the end of 2026, implying a 14% upside.

This bullish outlook presents a strategic entry point for exchange-traded fund (ETF) investors looking to tap into the country's expected growth recovery.

However, before suggesting a handful of Indian ETFs which you may add to your watchlist as potential investment opportunities, let us delve a bit deeper into what led to the Indian equity market’s underperformance this year and the catalysts driving a bullish outlook next year.

What Caused the Underperformance?

Several factors led to the recent lackluster performance of the Indian stock market. In particular, disappointing corporate earnings growth amid subdued domestic consumption and adverse outcomes from tariff disputes, including new U.S. tariffs that jolted export-sensitive sectors, contributed further to rupee depreciation and thereby affected the nation’s whole stock market.

In addition, domestic political uncertainty during the government’s new term and a slowdown in capex, along with global capital shifting to safer markets, with foreign investors estimated to have sold over $30 billion in Indian equities over the past year (as per a CNBC TV18 press release) all combined to keep Indian equities under pressure. From a valuation perspective, India’s equity market remained far above most of the emerging markets, which has been another point of concern so far. According to a report published by JP Morgan Asset Management in March 2025, Indian equities were trading at approximately 22.3 times forward earnings, about 20% above their long-term norm.

At present, the MSCI India Index, which covers approximately 85% of the Indian equity universe, has a Price/Earnings (P/E) ratio of 25.62, far above the MSCI EM (Emerging Markets) Index’s (that captures large and mid-cap representation across 24 EMs) P/E ratio of 16.36.

All these factors potentially led to the Indian equity market’s underperformance, the largest one in the past two decades, according to Goldman Sachs.

Why is the Outlook Bullish Now?

Goldman Sachs has now upgraded the Indian equity market to "overweight" after 13 months of a "neutral" rating, thanks to a confluence of positive signals. In particular, supportive policy tailwinds like RBI rate cut anticipated in December 2025, liquidity easing, bank deregulation, and reductions in the Goods and Services Tax (GST) in September are expected to ease financial conditions.

On the other hand, record equity purchases by Domestic Institutional Investors (DIIs) and steady retail Systematic Investment Plan (SIP) inflows have provided a powerful stabilizing force in the face of FPI selling.

In terms of valuation, Goldman Sachs sees limited downside or de-rating risk based on six different valuation approaches. Adding more to this optimism, India's relative premium to Asia has normalized to 45% from the peak 85-90%.

The brokerage also highlighted the end of a year-long cycle of earnings downgrades, with expectations for a clear earnings rebound ahead.

Indian ETFs to Watch

The aforementioned discussion suggests that a clear inflection point is nearing. By investing now, ETF investors can potentially benefit from both the anticipated earnings-led market rally and the return of foreign flows, making the current underperformance a strategic entry point.

Thus, to gain exposure to key segments of the Indian economy poised for growth next year, you may add the following Indian ETFs to your watchlist:

iShares MSCI India ETF ((INDA Quick QuoteINDA - Free Report) )

This fund, with net assets worth $9.57 billion, offers exposure to 160 large and mid-cap Indian companies. Its top three holdings are HDFC Bank (8.12%), Reliance Industries (6.59%) and ICICI Bank (5.18%).

INDA has gained 4% year to date. The fund charges 62 basis points (bps) as fees.

WisdomTree India Earnings Fund ((EPI Quick QuoteEPI - Free Report) )

This fund, with total assets worth $2.85 million, provides exposure to 542 profitable companies in the Indian equity market. Its top three holdings are Reliance Industries (7.49%), HDFC Bank (6.17%) and ICICI Bank (5.26%).

EPI has soared 3.1% year to date. The fund charges 84 bps as fees.

iShares India 50 ETF ((INDY Quick QuoteINDY - Free Report) )

This fund, with total assets worth $690.23 million, provides exposure to 50 of the largest Indian stocks. Its top three holdings are HDFC Bank (12.73%), Reliance Industries (8.53%) and ICICI Bank (8.14%).

INDY has soared 5.2% year to date. The fund charges 65 bps as fees.

Franklin FTSE India ETF ((FLIN Quick QuoteFLIN - Free Report) )

This fund, with total assets worth $2.59 billion, provides exposure to 273 Indian large and mid-cap companies. Its top three holdings are HDFC Bank (7.13%), Reliance Industries (6.45%) and ICICI Bank (4.54%).

FLIN has gained 3.6% year to date. The fund charges 19 bps as fees.