Whalesbook
Norway's Fund Rebalances Amid Shifting Markets
Norges Bank Investment Management, the manager of the world's largest sovereign wealth fund, has reduced its stake in India. This strategic shift in 2025 was driven by differing market performances. The fund trimmed India's share in its global portfolio by about 40 basis points, bringing it to 2.1% by the end of the year. This adjustment came after Indian equities saw a -1.4% return, starkly contrasting with the fund's strong overall 15% gain during the same period. The fund's strategy, aligned with the FTSE Global All Cap Index, automatically adjusts market weights based on performance and market value. As a result, weaker markets see their representation decrease, while stronger markets gain prominence.
Performance Divergence Drives Reallocation
The fund's 2025 disclosures show a significant shift towards other Asian markets. China's portfolio weight increased by roughly 30 basis points to 3.6%, and Taiwan's grew by around 20 basis points to 2.7%. Taiwan's allocation now notably surpasses India's reduced share. This pivot is driven by striking performance differences. Taiwan's equity market, particularly the TAIEX, showed exceptional strength, reaching six record highs in 2025. Its market value grew significantly, fueled by the global AI boom and demand for semiconductors, with the TAIEX index gaining approximately 27% for the year. China's markets also recovered, with the CSI 300 Index climbing 18% and the Hang Seng Index rising 28%, supported by a tariff truce with the US and government stimulus. Canada also saw strong returns, with its S&P/TSX Capped Composite Index gaining 31.7%.
India's Underperformance, Valuations, and Investor Flows
India's equity markets ended 2025 with modest gains of around 10-11% in rupee terms. However, in dollar terms, they returned only 4-5%, making them the world's worst-performing major equity market for the year. This underperformance was heavily influenced by record foreign portfolio investor (FPI) outflows totaling approximately $18 billion. The Indian rupee also depreciated from ₹85 to ₹90 against the US dollar. Despite these challenges, domestic institutional inflows offered crucial support. Valuations in India appear relatively high compared to some peers. The Nifty 50's forward P/E ratio was around 20.5x, and the consumer index traded at 44x, significantly higher than China's market P/E, which ranged between 11-15x. Taiwan's market P/E stood at about 26.6x, reflecting optimism but also a premium to its historical average. Norges Bank's India portfolio had previously doubled between 2021 and 2024 to about $36 billion, but declined to approximately $31.4 billion by the end of 2025 due to market performance. The fund has also shifted its India holdings decisively towards equities from fixed income in recent years, now holding less than 5% in fixed income.
Regulatory Scrutiny and Market Headwinds
Underlying risks and structural challenges also contributed to the reduction in India's allocation. Notably, the U.S. Securities and Exchange Commission (SEC) charged Gautam and Sagar Adani of Adani Green Energy Limited in November 2024. The charges allege they orchestrated a large bribery scheme involving hundreds of millions of dollars to Indian government officials to secure energy contracts. Adani Green Energy has stated it is not a party to the proceedings and faces no direct charges. However, the allegations highlight significant regulatory and governance concerns that can deter foreign investment in parts of the Indian market. Analysts also suggest India's global portfolio weight could remain under pressure if its domestic market continues to lag other emerging economies. Near-term market movements are expected to be range-bound. The country's underperformance in dollar terms and sustained foreign selling indicate a loss of relative attractiveness for overseas investors seeking clearer themes and stronger near-term earnings.
Outlook for India and Other Markets
Looking ahead, India has compelling long-term investment potential driven by demographics and ongoing reforms, but the immediate outlook remains cautious. Analysts expect a potential market rally from the second half of 2026, depending on improving economic indicators and earnings growth. Brokerage Nomura forecasts the Nifty to reach 29,300 by the end of 2026, implying a 12% return. In contrast, China's equity markets are expected to deliver solid returns in 2026, supported by policy momentum and recovering valuations. Taiwan, powered by its AI leadership, continues on its path to potentially become the world's sixth-largest equity market by capitalization.