Facing global headwinds, including a steep tariff by the United States, and record selling by foreign institutional investors (FIIs), India’s equity market severely underperformed when compared to returns delivered by global peers.
The local market logged its tenth consecutive year of positive returns with the benchmarks - BSE Sensex and NSE Sensex – gaining up to 10% in calendar year 2025. The Sensex surged over 9%, adding 7,080 points from its closing level of 78,139 on December 31, 2024. The Nifty50 advanced 2,485 points, or 10.5%, during the same period, from 23,645 on the same day last year.
However, when compared to returns delivered by major global markets, the 10% return stands short. In 2025, the US’ Dow Jones Industrial Average rose by about 13%, while the tech-heavy Nasdaq Composite jumped 26%. China’s stock markets staged a strong recovery, gaining 22%, and the MSCI Emerging Markets index soared nearly 30%, well ahead of India’s benchmarks. Japan’s Nikkei 225 also delivered a stellar return of 28% while Taiwan Stock Exchange surged 27%. Standouts included South Korea’s Kospi and Spain’s main index, which climbed 76% to 48% respectively, underscoring India’s relative lag.
What also worried the market was INR weakness which further diminished returns for investors. The rupee ranked as one of Asia’s worst-performing currencies in 2025, cutting the Nifty’s dollar-denominated gains to roughly 5.5%, about half its local-currency headline figure.
The Indian stock market, fourth largest in the world in valuation terms, faced intense geopolitical and economic headwinds. The year opened with the Iran-Israel conflict which sent global markets into panic mode. The local market also experienced heavy selling when tension between India and Pakistan escalated. US trade policy ambiguities, marked by President Donald Trump’s aggressive tariff policy was perhaps the biggest setback for global markets in 2025. Despite repeated talks, India and the US are yet to finalise the proposed trade deal.
FIIs unleashed heavy selling, driving a sharp rupee depreciation by year-end. This, along with muted demand across sectors in the first half of the year, curbed corporate earnings growth and dragged down India’s market. Another significant drag on Indian equities last year was the global "AI playbook" where India is not considered a serious player in the ecosystem.
The market’s momentum, which picked up pace during the closing quarter of the year, was primarily supported by robust domestic institutional participation, strong domestic fundamentals and lower crude prices. Domestic institutional investors (DIIs) infused over Rs 7 lakh crore into equities during the year, thus cushioning the impact of FII outflow. Foreign institutional investors (FIIs) offloaded equities worth Rs 1.44 lakh crore in the cash market in 2025.
Going forward in 2026, most analysts are upbeat about the Indian market over expectations of easing geopolitical risks and moderating tariff differences. However, uncertainty over the US-India trade deal, potential INR depreciation and reversal risk in the yen carry trade due to rising Japanese bond yields may limit upside.
Ajay Menon, MD & CEO, Motilal Oswal Financial Services said that resilient domestic fundamentals, RBI’s aggressive rate cuts and strong domestic investor participation helped stabilise markets and supported a year-end recovery.
Menon added that the outlook for 2026 appears constructive, with steady market growth expected on the back of an earnings recovery, improving liquidity and a gradual revival in private sector investment. According to him, key opportunities are likely to emerge in Financials, supported by healthy credit growth, improving return ratios and strong balance sheets.
Among sectors, Nifty PSU Bank soared 30.5% in 2025. Nifty Metal (29%), Nifty Auto (23.4%), Nifty Financial Services (17.4%), and Nifty Bank (17.1%) were the other gainers in 2025. The broader market, however, underperformed owing to valuation concerns. The Nifty MidCap100 gained 5.7% while the Nifty SmallCap 100 fell 5.6% in 2025.