US President Donald Trump's tariff hike on India risks leaving the Indian stock market far behind China, which is now the focus as the world's next major growth engine.
India's equity market is now $6.3 trillion behind China's market, recording the widest gap since March.
The MSCI India index also lagged 10 percentage points this quarter and recorded its worst annual performance since 2017.
Furthermore, Trump also announced a 50% tariff on Indian exports to the US, half of which involves penalties for purchases of Russian oil.
He targeted New Delhi for the tariffs, but ignored China, which buys more from Moscow. Meanwhile, Beijing is waiting for an extension of the trade truce with the US.
Goldman Sachs Group Inc also expects Indian stocks to continue to underperform emerging markets while raising its 12-month target and an overweight stance on Chinese stocks.
China's market has gained new momentum this year on easing trade tensions, 'anti-involution' policies and breakthroughs in artificial intelligence (AI) including the DeepSeek breakthrough.
However, India's long-term economic outlook remains attractive with Morgan Stanley predicting Indian stocks will reach new highs on population growth and infrastructure improvements.
