In late 1989, Japan accounted for 42% of all global stock market capitalisation. Eight of the world’s top ten companies by market cap were Japanese. The land beneath the Imperial Palace in Tokyo was theoretically worth more than the entire state of California. Institutional investors surveyed at the time — professionals, not amateurs — mostly said the Nikkei was not overvalued.

Then came a policy shift. Interest rates went up.

The Nikkei fell nearly 80% over the next decade. It took more than thirty years to get back to where it started.

Nobody saw it coming. Everybody explained it after.

That is not a story about Japan. That is a story about us.

The Narrative Has Shifted. But Has Anything Actually Changed?

In 2023, India was the only conversation in emerging markets. The Nifty delivered nearly 20% returns that year. Corporate earnings had grown at ~22% annually over five years. Foreign funds were tripping over each other to get in. The story felt airtight — demographics, digitisation, domestic consumption, political stability.

Today, India is out of favour. Korea and China are in.

So here is the question that matters:

Did the India story break — or did the price correct?

Because the fundamentals have not meaningfully changed. Demographics are intact. Earnings growth has not stopped. Domestic investors have continued to invest — with SIP flows staying resilient even as foreign capital turned volatile. Corporate balance sheets are the cleanest they have been in years.

But prices fell. So we changed our minds.

We always do.

We do not analyse the future. We rationalise the past.

What Foreign Investors Have Always Said — And Why None Of It Has Changed

Foreign investors have always had a complicated relationship with India. The entry is enthusiastic. The exit is faster.

What they have always liked: demographics, rule of law, a deep and liquid market, quality management, and domestic consumption that does not depend heavily on global trade cycles.

What they have never liked: valuations that look expensive relative to peers, currency depreciation that erodes dollar returns, tax structures that feel unfriendly, and — consistently — comparisons to cheaper markets like China.

Now read that again.

Has any of it structurally changed?

No. These were the same concerns in 2023 when India was widely seen as a must-own market. They are the same concerns today when sentiment has cooled.

Nothing fundamental has shifted nearly as much as the narrative suggests.

What changed is the price — and the narrative followed.

That is not analysis. It is rationalisation wearing analysis as a costume.

What Everyone Is Currently Certain About

Korea is the AI chip story. China is the comeback trade. India is expensive and slowing.

It all sounds obvious.

And that is precisely the problem.

When something becomes obvious to everyone, it is already in the price.

What moves markets is not what everyone knows. It is what nobody has thought about yet — or what people are not willing to believe.

The things that feel obvious today felt unlikely not very long ago. And the things that feel unlikely today are often where the next “obvious” story is quietly forming.

The Rupee: A Headwind — But Till When?

The currency argument against India is real. Over long periods, the rupee has depreciated meaningfully against the dollar, reducing returns for foreign investors.

But that is only half the question.

The more relevant question is: what happens next?

Currency trends are driven by inflation differentials. India’s inflation fell to a 47-year low in 2025. The rupee’s Real Effective Exchange Rate — which adjusts for inflation differences with trading partners — recently dipped below fair value for the first time in nearly a decade. The last three times this happened, the rupee recovered sharply.

And there is a scenario nobody is pricing in: what if the US dollar itself weakens as US rates fall? The rupee does not need to strengthen on its own merits.

It just needs the dollar to stop being stronger.

What Could Shatter the “Obvious” Stories

On Korea: the rally looks broad, but a large part of it is driven by a handful of companies tied closely to the global AI buildout. Strip that away, and you are not buying a market. You are buying a theme.

On China: the recovery narrative is gaining ground, but structural risks remain — from property sector stress to policy unpredictability. These risks do not disappear. They fade from attention until they matter again.

On the United States: market strength has been increasingly concentrated in a small group of companies. Concentration works — until it doesn’t.

Each of these narratives makes sense. That is why they are widely accepted.

But widely accepted narratives are rarely where the next surprise comes from.

And then there are risks no model captures — oil shocks, wars, policy decisions made overnight.

They don’t arrive as forecasts.
They arrive as price.

No Government Watches Its Own Market Sink Without Acting

One argument that rarely appears in bearish views is the role of policy.

No government allows its capital market to become irrelevant for long.

The question is not whether they act. It is when — and how.

India has already begun moving. Rate cuts of 125 basis points. Budget tax relief. JP Morgan bond index inclusion that automatically channels foreign capital into Indian debt. Infrastructure spending accelerating.

And none of the bigger triggers have happened yet — a rationalisation of the capital gains tax structure, a trade deal with the US removing the tariff overhang, corporate capex cycle starting in earnest on the back of the cleanest balance sheets in a generation.

Any one of these changes the story. All of them together trigger a re-rating that will look completely obvious after the fact.

They always do.

The Sleeping Giant Nobody Is Talking About

Indian corporates are operating with the cleanest balance sheets in a generation.

Low leverage does not persist indefinitely. It eventually translates into investment.

With rates now falling and infrastructure projects gearing up, the conditions for that cycle to begin are forming quietly.

Investment drives earnings. Earnings drive narratives.

And these shifts rarely unfold slowly enough to be fully captured in advance.

They appear in bursts — a few quarters of strong performance that force the market to reassess.

By then, it looks obvious.

But Wait — What If India Takes Decades Like Japan?

This is a fair question.

Japan’s lost decades were not a market correction. They were a structural trap — bad debt never cleaned up, zombie companies kept alive by cheap credit, deflation so entrenched that consumers stopped spending, and demographics that stopped growing entirely.

India has almost none of these. Corporate balance sheets are the cleanest in decades. The banking system has been through a painful NPA cleanup. India has inflation, not deflation — consumers spend today. Demographics are moving in the opposite direction.

Japan peaked at 60x earnings. India at its most expensive was around 22-25x. Different universe.

The more honest question is not whether India repeats Japan 1989. It is whether India looks more like Japan 2013 — two lost decades behind it, out of favour globally, reforms quietly beginning, with the best returns of the next decade still ahead.

One more difference. Japan had no government that needed its equity market to grow. India’s ambition to become a $10 trillion economy is structurally inseparable from a functioning capital market. That changes the incentives entirely.

“Fine. But Why Predict? I’ll Invest When It Actually Happens.”

This sounds sensible. It feels disciplined.

It is neither.

Markets do not reward certainty. They price it in.

By the time something becomes clear — when the data supports it, when the narrative is widely accepted — prices have already moved.

Waiting for confirmation does not reduce risk. It often just means paying more.

Certainty is always available in markets.

It just comes at full price.

Doing nothing is a decision.
Acting late is also a decision.

Both have a price. You just don’t see the invoice until later.

One Last Thought

The Japan story was obvious — until it wasn’t.
The Korea story was dead — until it wasn’t.
The India story was unstoppable — until it wasn’t.

Nothing changes suddenly in markets.

It changes quietly —
and then all at once in the price.

As Howard Marks put it:

“What the wise man does in the beginning, the fool does in the end.”

Markets discount the future.

We discount the past.

And by the time it feels obvious —
the price has already moved.

Disclaimer: Nothing in this post should be considered investment advice. The sole purpose is to provoke independent thinking. Please do your own research or consult a SEBI registered advisor before making any investment decision.