India’s stock market finished 2025 with weak returns for overseas investors, lagging far behind most global indexes.
2025 performance in simple terms
When measured in US dollars, the Sensex and Nifty50 rose only about 4‑5% this year. In rupee terms they were up 8‑9%, but the rupee’s fall erased much of that gain for foreign holders.
Because of the poor dollar‑based returns, foreign portfolio investors pulled out a record $18 billion – the biggest outflow from Indian markets in a single calendar year.
Why the returns were so low
- Weak earnings growth: Corporate profits slowed, reducing the momentum that usually lifts stock prices.
- High valuations without an AI boost: Compared with peers, Indian stocks were priced higher but lacked the AI‑driven excitement seen in markets like South Korea.
- Slower domestic growth: India’s nominal GDP growth fell below its 25‑year average, making the market less attractive to foreign money.
- Trade‑policy pressure: New US tariffs raised India’s effective tariff rate to about 33%, adding a further drag on sentiment.
Is a turnaround coming in 2026?
Several analysts expect conditions to improve next year:
- Domestic growth could pick up, with GDP projected to reach around 10% in FY27.
- Government measures such as income‑tax cuts, lower GST, and higher public spending are expected to boost consumption.
- Potential progress on an India‑US trade deal may lower tariff pressures.
- The US Federal Reserve is cutting rates, which could keep the dollar steady and allow the Reserve Bank of India to lower rates by up to 50 basis points.
- Corporate earnings are showing early signs of recovery, with some companies reporting double‑digit profit growth.
Analyst outlook
Forecasts suggest the Nifty could reach about 29,300 by the end of 2026, implying roughly a 12% return in rupee terms. While massive foreign inflows are unlikely, a modest improvement is possible if global AI hype eases and India’s valuation gap narrows.
Domestic investors remain cautiously optimistic, expecting earnings growth to return to the mid‑teens by 2026.
Bottom line for investors
2025 was a rough year for India’s equity market, especially for foreign investors. However, a mix of fiscal support, potential trade‑deal relief, and a softer monetary stance could set the stage for a healthier performance in 2026.
Remember, this is just perspective, not a prediction. Do your own research before making any investment decisions.