Stock traders monitor share prices during an intra-day trading session at a brokerage house in Mumbai on April 8, 2025. Asian and European markets battled on April 8 to recover from the previous day's tariff-fuelled collapse. US President Donald Trump slapped a flat 26 percent tariff on imports from India last week, with New Delhi saying it was examining both "implications" and "opportunities" from the duty hikes.

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Like what you see? You can subscribe here. But the tide may be about to turn as Wall Street analysts and investors turn bullish.

Those worries and a concoction of other factors — inflation, earnings disappointments — have led to lackluster performance for equities so far this year. The Nifty 50 is up 4.7% so far this year, and investors are likely to have welcomed the sideways move by the benchmark in May with a sigh of relief, in fact. Having overcome fears of the India-Pakistan conflict, Indian markets might lose its temporary status as a "safe haven" market if the U.S. and China come to a deal.

The Indian market is currently one of the most expensive globally, trading at over 20% premiums to its 20-year average price-to-earnings (P/E) ratio, which limits the potential for significant Nifty benchmark upside, according to analysts at CLSA. "After the recent rally, the Indian market has again inched up to become nearly the most expensive market in the world," said CLSA's Vikash Kumar Jain in a note to clients. Goldman Sachs strategists echoed that point, saying the MSCI India index "does not look favourable" even when adjusting for a stronger growth potential.

Wonks over at Morgan Stanley took a similar view of the stock market's recent performance. "Since September 2024, the market has digested an unprecedented amount of bad news – excessive valuations in [small and mid-cap] and a sharp correction in the broad market pointing to a slowdown in macro growth and earnings, US tariff-related volatility and a major terrorist attack along with India's response with the large-cap indexes about 5% from all-time highs and almost negligible changes in implied volumes," said the Wall Street bank's Ridham Desai. Norma analyst Saion Mukherjee also noted that most companies beat expectations for the latest quarter, but only because the expectations had been lowered significantly.

Yet, every single one of those market participants has turned bullish over the past couple of weeks. Goldman Sachs raised its price target for the Nifty 50 to 26,200. Nomura similarly sees the index at 26,140.

Even long-time cautious bears such as Bernstein's Venugopal Garre, who has been right in cautioning investors over rich valuations in the small and mid-cap sectors (SMID), are now rethinking their outlook. "They've been in a bubble zone for a while — a point we've never hesitated stating," said Garre. "The reality is this: the SMID bubbles have let go of a lot of froth and are broadly valued in line with recent history.

Not cheap, and not exorbitant." And it's not just strategists, analysts and advisors turning around. Money managers are also echoing the same sentiment.

"A lot of people look at India and have said, 'Gosh, the valuations are enormous,'" said Andrew Dalrymple, chief investment officer at Aubrey Capital Management. "If you took that view, you'd never buy an Indian equity. You would have missed an enormous opportunity in the last five years."

Aubrey Global Emerging Markets Strategy, which manages more than $500 million in assets, has 35% of its fund allocated to India, its largest allocation. "We try to reconcile valuation of the price earnings-to-growth ratio, and say when we look at an Indian company, it might nominally have that high P/E but we then say this is justified by price-to-growth ratio, which we try to keep at less than 1.5 times," Dalrymple added. "And that way, we find we have been able to exploit some extremely successful, very, very profitable investment opportunities over the years."

Dalrymple's sentiment is also reflected in the data. Foreign institutional investors have been net buyers of Indian equities over the past two months. Yet, it's off a low base, suggesting a significant upside in an ideal scenario.

Morgan Stanley's Desai noted that "foreign portfolios positioning is the weakest since we have had the data in 2000, and there are early signs that their view on India is shifting." Amid all the sudden bullishness, however, many investors have learned a thing or two over the past year and are approaching with caution. "This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors since the Covid pandemic," Desai said in a note to clients on June 2.

Financials, often viewed as a leveraged bet on the future of a nation, appear to be a favorite among many. In the large-cap space, Axis Bank was a top pick for Nomura and Goldman Sachs, with ICICI Bank seen favorably by Morgan Stanley, CLSA and JP Morgan.