Oil shadows, the AI migration, and why India’s best chapter may still lie ahead.
A sailor does not judge the ocean by a single wave. The sea is never still, it heaves, it calms, it surges again. Great investors understand this. Markets, like tides, move in cycles. The question is never whether the sea will be rough it always will be, sometimes. The question is whether your vessel is built to sail through it, and emerge stronger on the other side.
As we write this article, India’s equity markets have given back some ground in 2026. Global oil prices have climbed. Geopolitical uncertainty hangs over the Strait of Hormuz. And foreign institutional investors, who powered India’s rally from 2021 to 2024, have redirected capital toward the global AI technology value chain. On the surface, it may seem like a difficult moment to be an Indian investor.
It is not. Context is everything. And the data — examined in detail may tell a very different story.
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The Ledger That the Headlines Forget
Global Market Calendar Year Returns (%) | Source: BSE, Bloomberg | Data as of May 2026
Markets are judged in moments, but built over years. Before you read any further, look at the table below. These are verified returns across 10 global markets, spanning from CY2021 through May 2026.
One number demands a second look. In CY 2022 — when global central banks raised interest rates aggressively, the US market fell 16.4%, China collapsed 21.6%, South Korea fell nearly 25%, and Vietnam plunged 32.8%, India delivered a positive return of +4.8%-7%. Among all 10 markets tracked, only India, Brazil and Kuwait finished in positive territory. This was not luck. It was structural resilience — a young consumption- driven economy, prudent fiscal management, and a domestic investor base that held its nerve.
Over the full cycle from 2021 through today, India’s BSE 500 has delivered an average annual return of +13.4% — virtually identical to the United States SsP 500’s +13.4%, and well ahead of the global average of +12.2%. This is the number that rarely makes the front page.
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The AI Migration — Why FIIs Turned East
Since late 2024 and through 2025, a powerful force has reshaped global capital flows: the race to build artificial intelligence infrastructure. This was not a vague theme; it was a precise investment thesis with very specific beneficiaries.
AI requires semiconductors. Semiconductors, at scale, come primarily from Taiwan (TSMC) and South Korea (Samsung, SK Hynix). Japan hosts critical materials suppliers and precision toolmakers that feed the entire AI supply chain. Foreign institutional investors, ever rational in their pursuit of opportunity, followed the money — and the returns confirmed their instinct.
South Korea’s KOSPI surged an extraordinary +75.6% in a single calendar year — one of the most dramatic national market rallies in recent memory, fueled almost entirely by its dominant position in AI memory chips. Taiwan’s TAIEX posted back-to-back years of 25%+ gains. Japan, a steady compounder, delivered +26.2%.
India, while still posting a positive +7.6% in 2025, fell behind this AI- specific capital wave. This is neither a failure nor a permanent condition — it is the natural ebb and flow of global thematic capital. Every major market has had its moment of being the market that FIIs temporarily ignore. The United States itself endured this in 2022, falling 16.4% while India stood firm.
“The tide that pulls capital away from a market never stays out forever. It always — always — comes back, and usually with force.”
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The Oil Shadow — A Real Headwind, a Manageable One
Let us be direct about the challenge. India imports approximately 85% of its crude oil requirements. When global oil prices rise, the arithmetic is unforgiving: every $10 increase in crude oil prices adds an estimated
$13–18 billion to India’s annual import bill, and can push domestic inflation up by 35–60 basis points. This pressure is real, and it weighs on the rupee, on corporate margins in energy-intensive sectors, and on the broader fiscal calculus of the government.
- Current Oil Environment: Higher crude = wider Current Account Deficit = rupee pressure = FII caution. This explains a significant portion of India’s -6.0% YTD performance in 2026.
- The Silver Lining: India’s government has diversified its crude sourcing to an unprecedented degree — including from Venezuela and other unconventional partners — to maintain energy continuity and keep away from any shortages.
This kind of supply-chain ingenuity does not make headlines. But it matters enormously. India kept its refineries running, its factories productive, and its inflation from galloping — even in a difficult global energy environment. The short-term market reaction does not always reflect this competence. But over time, prudent management always shows up in returns.
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India’s Counter-Move — Building for the AI Era
While FIIs have been chasing the AI value chain in Taiwan and South Korea, India has quietly begun laying the foundation to become a part of that chain — not a spectator of it. Two landmark developments deserve particular attention:
These are not short-term trades. These are multi-decade structural investments that will compound over time.
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The Hormuz Wildcard — The Catalyst Markets Are Watching
Perhaps the single most consequential near-term macro development for Indian markets is unfolding in the diplomatic back channels between Washington and Tehran. The United States and Iran are currently in active negotiations toward a potential peace agreement, one that would, critically, reopen the Strait of Hormuz to unhindered global shipping.
Why This Changes Everything for India: Approximately 20% of global oil trade transits through this narrow waterway. The moment a credible peace agreement is signed and the Strait reopens fully, global crude prices are widely expected to fall sharply, triggering a narrowing current account deficit, a stronger rupee, lower inflation, rising corporate margins, and possibly giving a powerful trigger for FII re-entry into Indian equities.
This is not speculation; it is basic macroeconomic cause and effect. The Indian market has historically responded with powerful upward moves
when global crude prices decline materially. The setup: should the peace deal materialize, could be one of the most significant positive catalysts for Indian equities in years.
Markets rarely wait for good news to be confirmed before they move. By the time the peace deal is signed, a significant portion of the re- rating may already have happened. Patient investors who hold through the uncertainty often capture this move in full.
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The War-Ready Portfolio — Calibrated Diversification
None of what I have written above changes the fundamental wisdom of a well-diversified portfolio. In fact, the current environment makes the case for diversification more compelling than ever.
A portfolio built for India alone is exposed to India’s cyclical headwinds. A portfolio that holds global equities (tactically) captures the moments when other markets lead, as Taiwan and South Korea did in 2025. A portfolio that holds gold and metals never panics when geopolitical noise peaks — because it has already insured against it.
This is what we mean when we say War-Ready. Not a portfolio that avoids risk — but one that has positioned itself to benefit from multiple outcomes simultaneously. When crude crashes and India soars, the India allocation wins. When AI drives markets in Taiwan, the international allocation wins. When the world is uncertain, gold holds its ground. The portfolio as a whole never suffers from a single narrative being wrong.
A Final Thought: The Sailor and the Storm
We return to where we began. Markets never move in a straight line upward. They never have, and they never will. India delivered +31.6% in 2021, +4.8% when the world was falling apart in 2022, +26.5% in 2023, and +15.7% in 2024. Today, in 2026, the market has pulled back.
History suggests, with reasonable consistency, that periods of temporary underperformance in a fundamentally strong economy are not dangers to be fled, they are opportunities to be measured, positioned, and ultimately rewarded by.
The storm at sea is not a reason to abandon the ship. It is a reason to trust the vessel you have built and to ensure it is strong enough to sail through to the other side, where calmer waters and favorable winds await.
