Indian equities have just finished their worst year compared to Emerging Market peers in around three decades. The drawdown deepened through the first half of May 2026, in part due to the Hormuz crisis. The US-Iran ceasefire, Chinese strategic petroleum releases and some preliminary Indian policy actions have stabilised things temporarily, but the situation remains serious. But we want to talk about something more interesting than the short-term.

A few markers worth holding in mind together:

• India’s MSCI EM weight has slipped to fourth: behind Taiwan, China, South Korea. Twenty months ago, on the IMI sub-index it was briefly first.

• Foreign ownership of listed market sits at 15%. That’s a decade-plus low.

• Rupee at around 96 to the dollar. Lifetime nominal low, multiyear real low.

• Sensex-Gold ratio is at multi-decade lows.

Each of those is a sentiment indicator. Together they describe a market that has been significantly de-rated but the valuation picture looks relatively sanguine.

The valuation picture is straightforward

Nifty 50 P/E sits at 20.60. On a methodology-adjusted basis, accounting for NSE’s 2021 switch from standalone to consolidated earnings, that places valuations in the 16th percentile of the last decade. Similarly, Nifty 500 is around the 21st percentile. MSCI India’s premium to MSCI EM has compressed from roughly 2× at peak to below its long-term average. Corporate India’s debt-to-equity is at multi-decade lows. Listed PAT-to-GDP at ~5% remains mid-cycle, significantly below the 2007–08 annualised peaks.

Recent quarters suggest that the earnings cycle may be turning. Double-digit nominal topline growth is back. For the March quarter, profit growth has also been strong although the real variable to watch will be June. Working capital cycles have compressed across most sectors. Corporate balance sheets are leaner and more capital-efficient than at any prior point in the data.

There is one comparison we come back to: Chinese listed EPS grew at roughly half the pace of nominal Chinese GDP. That gap is underappreciated; it is the difference between a country growing and a shareholder being paid. Indian corporates have converted economic growth into per-share earnings at a materially higher rate. This is the structural reason that long-term Indian equity has compounded the way it has, in spite of the volatility along the way.

The dollar cycle is the other half

The US real effective exchange rate has registered four clear peaks: around 1970, 1985, 2002, and now January 2025. Each prior peak was followed by an approximately decade-long depreciation, during which capital rotated into emerging markets. If you decompose US equity outperformance since 2010, most of the cumulative gap is dollar strength and multiple expansion.

We don’t need conviction on the exact date this cycle turns. We just need to recognise that the conditions historically associated with the turn appear well advanced.

And there is one chart worth pinning

Indian listed equity, valued in gold, is at its lowest reading since 1991 — below the 2002–04 EM cycle trough that preceded the 2003–07 bull run. This is not the kind of drawdown that gets generated by fundamentals. It is what happens when flow-driven derating stacks on top of a strong dollar and the marginal global allocator gives up on a market all at once.

Hormuz is the catalyst, not the thesis

Brent futures are in backwardation — the market expects resolution. For the long-horizon investor, the risk has shifted: it is no longer being long Indian equity at current valuations. It is being absent from it. The latest trade data has held up relatively well though caution is warranted.

One advantage that doesn’t get enough credit

Several large EM economies are effectively single-sector trades. Taiwan and Korea on semiconductors. Brazil on commodities and energy. India isn’t. The listed market carries financial services, IT, consumer, healthcare, manufacturing, energy in meaningful weights with none very dominant. That breadth promises to produce lower realised volatility and more stable cross-asset correlations than concentrated EM peers. For a long-duration allocator, that matters more than headline P/E.

How we are positioning

Our approach is to deploy in phases. Calling the exact bottom is neither necessary nor, in our experience, productive over a five-year horizon. The asymmetry has shifted enough that systematic accumulation over the next few months looks well-positioned.

For domestic investors with established long-term allocations; the framework calls for no change. For global investors, materially underweight India in their EM mandate, our view is that the case for moving toward neutral market-weight is stronger now than it has been at any point in the recent cycle. Twenty months of consolidation have done their work. The setup is rare. And in our view, this setup is worth acting on.

Sources and methodology

MSCI EM weights from MSCI factsheets (Apr 30, 2026) and ETF country-weight summaries; Sep 2024 reference from Morgan Stanley note (via Business Standard, 5 Sep 2024). US REER from FRED series CCRETT01USM661N (BIS, CPI-based, monthly). Sensex/Gold ratio constructed as (SPASTT01INM661N ÷ DEXINUS) ÷ IQ12260, all monthly, rebased Dec 1984 = 100. Top-500 listed financials from Screener.in, latest available filings as of May 2026; the screener data largely reflects FY26 (most large caps have reported Mar-26 quarter). PAT/GDP uses nominal GDP reference of ₹345 lakh crore (FY26 estimate). D/E excludes banks, finance, insurance and capital markets from aggregate calculations as structurally non-comparable. GDP-vs-equity scatter sourced from Financial Times, citing EM Advisors; local market index price growth 2000–2024, all converted to USD.

Written by Harsh Gupta Madhusudhan, CFA, Author & Fund Manager – PIPE Fund, Ionic Asset

Four full weeks into an active geopolitical conflict in the Middle East, and the markets have delivered their verdict: this is not a drill. The only honest summary we can offer is that this is a rather man-made disaster.

Equity markets have swung from denial to near capitulation. The favourite trades of 2026 have reversed sharply. Back in mid-February, there were casual conversations around the fact that all the consensus trades this year - emerging markets, commodities - rested on a single driver: dollar weakness. The logic was airtight. From fiscal dynamics to monetary policy, from institutional flows to positioning data, everything pointed the same way. The dollar was going to weaken. The only debate was by how much.

And yet, here we are. A month later. Taking educated guesses on how far the dollar can strengthen.

That is the most exciting thing about markets. What seems most obvious often turns out to be anything but. As students of this craft, we bow, once again.

If you are navigating intelligent conversations with morning walkers, gym buddies, or that startup-founder friend, here is how we are answering the questions that matter most right now.

1. Where Does Oil Go?

The first set of ships that departed before hostilities began have now reached far-off destinations like South Korea. Of the roughly 20 million barrels per day that move through the Strait of Hormuz, about 7 million can be rerouted. The remaining 13 million cannot.

Alternate routes exist. The Cape of Good Hope, for instance. But if the normal route takes 19 days, the Cape adds 16 days for European destinations and 22 days for Japan. The distance nearly doubles. Most vessels are already rerouting, given the scale of the emergency.

Transit costs tell the story plainly: from USD 125,000 per voyage to over USD 2 million.

Oil and gas remain acutely dependent on the Strait of Hormuz reopening. Alternate routes will stabilise over time, as they always do. At sufficiently elevated price levels (above USD 130 per barrel), demand destruction historically acts as a natural ceiling for oil. On the downside, current cost structures and producer behaviour suggest meaningful support exists well above recent cycle lows, i.e. around USD 80.

Likely long-term implications:

• Countries will build Strategic Petroleum Reserves far more aggressively.

• The push toward renewables and energy alternatives is likely to become a strategic national priority, not just a climate one.

2. Where Does the Dollar Go?

In a continued risk-off environment, the dollar strengthens. Cash is king when uncertainty is high, and most global asset managers entered 2026 at record-low cash levels. That is now reversing; and reversing fast.

Dollar strength is not good news for emerging markets or commodities outside of oil.

However, if the dollar strengthens far enough to destabilise markets broadly, the Federal Reserve may be compelled to act. At that point, the dollar would reverse. There is also a tail-risk scenario: if the United States is perceived to be losing ground in this conflict, a “Sell America” narrative could intensify and weigh on the dollar over the longer term.

Our base case is a rising dollar in the near term, with the trajectory ultimately dependent on how far the Fed is willing to let markets deteriorate before stepping in.

3. What Happens to Equities?

Most markets, including India, now appear to be flashing oversold.

For context: during the 2022 selloff, the NASDAQ 100 PE bottomed at 20.5x. It already touched 21.5x last Friday.

There is another signal worth watching. Implied correlations have spiked sharply. In plain terms, this means everything is being sold together, indiscriminately. As one market research firm noted, correlation spikes have historically coincided with market bottoms. Things are bad, but we may be getting closer to the floor.

Geopolitical events have a track record of being clearing events for valuations. The next generation of market leaders is typically born in exactly this kind of environment.

Calling the precise bottom is always hard. But the weight of evidence suggests we are approaching one. Either that, or a prolonged bear market. Current earnings and demand fundamentals do not support the deeper bear case. Some combination of policy action or a Fed backstop should eventually calm nerves.

4. What Happens to Precious Metals?

Gold and silver have had their dance.

At current elevated levels, the risk-reward for fresh positions has narrowed considerably. We remain constructive on gold and silver for the long term. Dollar strength, policy uncertainty, and rising US Treasury yields create a challenging backdrop for precious metals in the near term.

5. US Yields: The Biggest Problem in the Room

Global yields are rising. The driver is straightforward: higher oil prices are pushing up inflationary expectations.

Fiscal policy needs to act to curb energy prices and ensure access. Many countries have already done this. But the United States has a particular problem. It cannot afford persistently high yields. US 10-year Treasury yields above 5% would be genuinely dangerous for global markets. Something, whether a policy pivot or a market intervention, has to come first.

6. Emerging Markets: Where Next?

Emerging markets command a risk premium in normal times and tend to do well in easy liquidity environments. Right now, neither condition applies.

EMs also carry high energy import dependency and are exposed to currency weakness as the dollar strengthens. They are not the winners in the current environment.

Brazil stands out as relatively insulated. But broadly, we view the pain in EMs as transient. Earnings remain strong and valuations are among the most attractive they have been in years.

The Bottom Line

The conflict shows little sign of a near-term resolution. But investor behaviour has, on balance, been more prudent than panic-driven.

More pain in risk assets is likely before conditions improve. But abandoning equities at this stage seems like the wrong call. History suggests that geopolitical dislocations, painful as they are, have tended to be transient for equity markets. Investors with a defined time horizon and appropriate risk appetite may find that disciplined positioning through volatility has historically served them better than reactive allocation changes.

Markets have a way of clearing, recalibrating, and rewarding those who stayed.

We are watching closely.

Ionic Macro Desk

Disclaimer: This publication has been prepared by Ionic Wealth for informational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or financial instrument. The views expressed herein reflect current assessment based on publicly available information and are subject to change without notice.