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GUINNESS WORLD RECORDS TITLE ATTEMPT - Day 1

El Nino & Stock markets- Twin flames

  •   Tue, Nov 03 2026
  •   By David Pinto Prabhu

November 3, 2026 

If someone is actually missing out on something at the moment in Mangaluru, it’s the pleasant weather. And all that one can do is blame it on El Nino. El Nino happens to be a recurring weather phenomenon on the eastern Pacific coast, where in the winds stop blowing which in turn causes global temperatures to rise. It also causes heavy rainfall in parts of South America and Southern United States. On the flip side it causes severe drought in Australia, Indonesia & parts of Africa. A simple disruption in the winds on the Pacific coast has an impact all over the World, Atlantic to Indian Ocean and its surroundings.

On a different note, if someone is tracking global equity markets, countries like US, China, Korea, Japan, United Kingdom & Taiwan are attracting all the inflows. Countries like China, Taiwan, Korea and Japan have been advancing on AI & semiconductors, the current darlings of the equity market. Taiwan (TWSE) has gained 59% and South Korea (KOSPI) 30%-year to date. The US G sec yield has become attractive and getting the flows which would have otherwise gone to emerging markets. After all, US G Sec is considered as a safe bet.

On the other hand, India (NIFTY) is ranked as the worst performing among global markets. It has delivered a negative return of 13% YTD. It is facing relentless outflows. Over 40 billion USD has exited Indian shores in 2026 alone leading to rupee depreciation of 6% YTD. This is in stark contrast to the inflows of 37 billion USD in FY 21. India being a domestic consumption story is currently yet to catch up on the AI developments and hence missing out on the latest inflows.

How different is the El Nino effect when compared to the changing flows for Indian equities? Just like a mere change in the weather pattern somewhere on the Pacific coast can hamper things on the African coast; innovation in AI in China, Taiwan & Korea can cause movement of capital out from India’s shores to the countries building on AI & semiconductors. This is in spite of India being the fastest growing economy. Moreover, Indian companies enjoy better margins when compared to Germany, Japan & UK. India which till recent was a darling of the Foreign Institutional Investors (FIIs) is today facing isolation. This isolation has resulted in the markets remaining stagnant for close to three years. Just as El Nino causes irregular disruptions in weather, markets can turn volatile at irregular intervals resulting in stagnation in returns. A development in the form of innovation elsewhere, can restrict the flows into India.

Today, what Indian companies lack is innovation. We have tech companies spending around 1-2% (Rs 1,000 Crs to Rs 2,000 Crs) on research & development. Just to give an idea of the gap, Nvidia spends 8 % on R & D roughly around 7 billion USD in dollar terms. The government has cut corporate tax, introduced manufacturing incentives to encourage investments, yet the results in breakthrough innovation is not impressive. India has made innovations in the pharma space, automobiles, digital payments (UPI) and so on. But most of these don’t appear in the listed equity space and the stock market is not able to gain mileage from such innovations.

India just cannot make its stock markets attractive by lobbying for cuts in LTCG & STT. There needs more spend from the corporate sector on its R & D to create more innovation in technology and not just services. It’s only when the companies become innovative and create disruptions, like the one AI is currently doing favouring Taiwan, Korea & the rest, flows will flow back in droves into India. We need more companies to be listed which are leading the innovation space. An unlisted company based in Bengaluru, Sarvam AI, raised in 234 million USD (Rs 2,200 Crs!).

At the same time funds cannot keep flowing to AI & semi-conductor themed markets. The Korean markets have witnessed corrections as valuations are turning expensive now. Fresh money will search for new innovators not just under AI. It can also be in defence. Markets don’t stick to just one theme or country. They are always on the lookout for the next big thing. For the existing investor in equities, stay invested, you never when the tide reverses. Please check with your financial advisor before taking any decision.

 

 
By David Pinto Prabhu
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