India’s Stock Market Performance in 2025: Why Returns Lagged Global Peers and What 2026 Could Bring
- 5th January 2026
- 01:00 PM
- 3 min read
Summary
Indian stock markets extended their decade-long bull run in 2025 but underperformed global equity markets. Heavy foreign investor outflows, a weakening rupee, geopolitical tensions and uneven sectoral performance weighed on returns. Despite a 2.8% rise in market capitalisation, India’s share of global market cap fell to 3.5%.Mumbai | January 5, 2026
India’s stock market ended 2025 in positive territory, extending its bull run to a tenth consecutive year. However, despite the headline gains, Indian equities underperformed most global and emerging market peers, making 2025 a year defined more by resilience than leadership.
The Nifty closed the year up around 10.7%, but in a global environment marked by strong rallies elsewhere, India’s returns appeared subdued. For investors, the key takeaway from 2025 was not whether the market stayed positive, but why it failed to keep pace with global markets.
Why Indian equities underperformed global markets in 2025
The most significant drag on Indian equities in 2025 was sustained foreign portfolio investor (FPI) selling. Global investors reduced exposure amid heightened uncertainty and redirected capital towards markets offering stronger near-term earnings momentum and clearer thematic drivers.
This selling pressure was compounded by a steady depreciation of the Indian rupee, which eroded dollar-adjusted returns. While domestic investors saw positive headline gains, overseas investors experienced much lower effective returns, weakening India’s relative attractiveness in global portfolios.
At the same time, global capital flowed aggressively into technology, AI, and semiconductor-led markets, further widening the performance gap between India and its peers.
How global and domestic factors shaped market performance
Markets spent much of 2025 navigating overlapping global and domestic headwinds. Geopolitical tensions and prolonged uncertainty around US trade policy kept global risk appetite fragile throughout the year.
On the domestic front, muted demand in the first half of the year, the transition to GST 2.0, and uneven corporate earnings growth limited the market’s ability to build sustained momentum. Earnings failed to consistently surprise on the upside after several years of strong upgrades, keeping Indian equities largely range-bound.
What worked and what didn’t in Indian markets in 2025
Market performance in 2025 was sharply polarised. PSU banks, metals, and auto stocks delivered relative outperformance, supported by balance-sheet improvements and selective demand recovery.
In contrast, IT and real estate stocks lagged, weighed down by global uncertainty, slowing deal activity, and valuation pressures. Broader markets also struggled, with small-cap stocks declining on average and market breadth remaining weak.
While equities disappointed on a relative basis, gold and silver outperformed, benefiting from global uncertainty and currency weakness. Despite heavy foreign selling, domestic investors played a critical stabilising role, with strong SIP inflows helping the market avoid deeper corrections.
2026 outlook: what investors should watch
As markets move into 2026, the outlook for Indian equities will hinge on a few critical variables. A recovery in corporate earnings growth, stabilisation in the rupee, and any moderation in foreign investor outflows could improve India’s relative performance.
Global interest rate trends, commodity prices, and geopolitical developments will continue to influence risk appetite. If earnings momentum improves and global conditions stabilise, Indian equities could regain relative strength in the year ahead.
2025 reinforced a simple lesson for investors: staying invested mattered, but outperformance was hard-earned. India’s equity story remains intact, but leadership in 2026 will depend on fundamentals rather than flows.
