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Informist, Friday, Jan. 2, 2026

 

By Simran Rede

 

MUMBAI – The Indian equity market continued to offer subdued returns in 2025, but the returns were slightly better than in 2024. While the year witnessed nightmarish tariffs by the US, it also saw a ray of hope after the government cut goods and service tax on several products. The market faced multiple challenges on the global front during the year but domestic factors acted as a cushion and kept sentiment largely positive.

 

The Nifty 50 yielded over 10% returns in 2025, slightly higher than the 8.8% returns recorded in 2024. Despite the marginal improvement, the 10% rise was still only half the bumper returns of 20% seen in 2023.

 

Returns from the market in 2025 were largely in line with the 10-12% rise expected by brokerages at the beginning of the year. The Nifty 50 breached its earlier lifetime high on Nov. 27 after more than a year of subdued gains. Following this, it hit a peak of 26325.80 points on Dec. 1. The Nifty 50 ended the year at 26129.60 points.

 

Although the rise of the Nifty 50 was a tad higher on year, the benchmark index sharply underperformed its peers in the US, Asia, and Europe. While the domestic market rose in low double digits this year, the US market clocked 13-20% growth, primarily due to interest rate cuts and the boom in artificial intelligence. Major Asian markets, too, outperformed India, recording growth of 18-76%, while European markets gained 12-31%. 

 

Foreign portfolio investors sold Indian equities in 2025, which affected returns, while strong flows from domestic investors helped the index record 10% returns. FPIs net sold more than INR 1.6 trillion of Indian equities in 2025, against a net purchase of INR 4.27 billion a year ago, data from National Securities Depository Ltd. showed. This was the highest selling by FPIs in the Indian market in a year since 2002.

 

Several heads of research of broking firms cited valuation concerns and slow earnings growth as the key factors behind foreign investors pulling out money from Indian equities. The persistent selling contributed significantly to the sharp depreciation of the Indian currency as well in 2025. 

 

The rupee hit its all-time low of 91.08 per dollar on Dec. 16 as uncertainty about a trade deal between the US and India lingered. Unless growth in corporate earnings picks up pace, analysts do not expect foreign investments to return to India. 

 

In 2025, the US increased tariffs on Indian goods to 50%, which were effective from Aug. 27. US President Donald Trump had first imposed 26% reciprocal tariff on India in April, only to pause it for 90 days. He then imposed a 25% tariff in July and then raised it to 50% in August, saying the additional 25% tariff was a penalty for buying crude oil from Russia.

 

The US also hiked the H1-B visa fee to $100,000 per year. Previously, this cost employers between $2,000 and $5,000 per petition, depending on the size of the employer, according to the American Immigration Council. This fee is paid while applying for the H-1B visa programme to hire foreign workers.

 

Despite all this, domestic institutional investors have supported the market and managed to take the indices to record highs near the year-end. The intensity of buying by domestic institutional investors against continuous selling by foreign portfolio investors is the highest seen so far, including during the global financial crisis of 2008 and the interest rate spike-driven selling of 2022, ICICI Securities said in a strategy report in December. Domestic investors recorded their 16th straight month of net inflows in December and bought nearly INR 5 trillion Indian equities in 2025.

 

BIRD'S EYE VIEW

The Nifty 50 could meet the targets of only two of the seven brokerages, and of these, it surpassed Emkay Global Financial Services' target by almost 5%. The index missed the targets of five brokerage firms by 1-8%.

 

In the broader market, mid-cap indices rose around 5-7% during the year, underperforming their benchmark peers. On the other hand, small-cap indices fell over 4-6% in 2025. The valuations of small-cap and mid-cap companies are at a significant premium compared to their long-term averages. The Nifty Smallcap 100 index is 25.1 times the price to earnings, higher than its long-term average of 16.7 times, and the Nifty Midcap 100 is at 29.2 times the price to earnings, also higher than the long-period average of 23.1 times, Kotak Asset Management Co. said in its market outlook for 2026.

 

Major geopolitical instabilities during the year, such as tensions between Russia and Ukraine, affected equity markets around the world. Global crude oil prices peaked to levels of over $80 per barrel in June after the US' aggressive intervention in the conflict between Israel and Iran. 

 

Oil prices had also surged above the psychologically crucial $80 per barrel level after the US Department of Treasury announced sanctions on two Russian oil producers and 183 vessels that shipped Russian oil, targeting the revenues Moscow has used to fund its war with Ukraine. 

 

In March, eight member nations of the Organization of the Petroleum Exporting Countries and its allies decided to proceed with the gradual unwinding of voluntary production cuts from Apr. 1. The countries hiked oil output for eight straight months from May. However, they have agreed to pause production hikes for Jan-Mar 2026.

 

During the year, the Indian government was in talks for several free trade agreements, including with the UK, the European Union, New Zealand, the Association of Southeast Asian Nations, Oman, and Qatar. By the end of 2025, it managed to cut deals with New Zealand, Oman, and the UK. 

 

EARNINGS

The earnings of India's top listed companies in 2025 were bleak, with analysts tagging it as "muted" and "not a surprise". Despite strong support on the macroeconomic front, the earnings could not mirror the country's economic growth. Although the intensity of earnings downgrades eased, the trend remained, keeping expectations in check. 

 

As the growth in the earnings of India Inc. continued to be subdued, particularly in the September quarter, it affected market sentiment. In the March quarter, the growth in the bottom line of Nifty 50 companies fell for the first time in 10 quarters. Following this, the metric rebounded in the subsequent quarter, albeit in single digit.

 

In the September quarter, growth in the net profit of Nifty 50 companies fell 0.4% on year, largely dragged down by banks. Revenue growth for the quarter was 8.7%, the 10th straight quarter of single-digit growth. Sales were primarily impacted by deferred purchases due to GST cuts.

 

During the year, persistent sluggish demand among domestic consumers and relatively stretched valuations impacted earnings and stock prices. However, analysts say valuations have eased and currently, the Nifty 50 is trading close to the long-term average of 20.8 times the earnings-per-share, Kotak Asset Management Co. said.

 

ECONOMY DRIVERS

Growth in India's economy surprised the market throughout the year. In the September quarter, GDP grew at a six-quarter high of 8.2%, higher than the 7.2% projected by economists in an Informist poll. GDP growth in the quarter was 120 basis points higher than the Reserve Bank of India's forecast of 7.0%.

 

Retail inflation in the country fell for nine of the first 11 months in 2025, falling to a record low in October. November was the tenth consecutive month when CPI inflation stayed below the Reserve Bank of India's medium-term target of 4%. The fall in headline CPI inflation was due to a favourable base effect, a continued drop in food prices, and lower goods and services tax rates announced in September.

 

To give a fillip to falling consumption demand in the economy, the government announced in the Union Budget that the tax rebate limit would increase to income of up to INR 1.2 million under the new tax regime. Another welcome announcement by the government was the GST cut in September, which led to a surge in automobile stocks. 

 

REGULATORS

The year started with the government appointing Tuhin Kanta Pandey as the Securities and Exchange Board of India's chairman for three years. After taking charge, Pandey said SEBI was happy to engage with foreign portfolio investors and alternative investment funds to ease regulations and enhance ease of operations. 

 

A serious matter of index manipulation was under discussion in July. SEBI barred four entities of Jane Street group, a global trading company, from participating in the securities market over allegations of index manipulation. The regulator issued an interim order demanding INR 48.44 billion from the four entities. Jane Street group entities were alleged to have made unlawful gains by manipulating the cash and derivatives markets. The entities infused a large amount of funds in index constituents of the Nifty 50 and the Nifty Bank to manipulate prices in derivatives, especially options contracts.

 

In its response, Jane Street disputed the findings of SEBI's interim order and went to a tribunal. Shares of BSE had fallen almost 7?ter SEBI prohibited US-based Jane Street Group's entities from dealing in Indian equities with low trading volume of futures and options contracts. The stock logged 48% gains in the year.

 

Jane Street filed an appeal at the Securities Appellate Tribunal against SEBI for not sharing all relevant documents relating to the market manipulation allegations. While the initial restrictions were lifted, SEBI's investigation continues, with potential further actions, including tax probes, being considered. The core allegations of market manipulation remain under review. 

 

The regulator of money markets, the Reserve Bank of India, focused immensely on infusing liquidity in the system. After the new governor, Sanjay Malhotra, took charge, the central bank reduced the repo rate by 125 basis points in 2025. The rate was reduced to 5.25% from 6.50% in December 2024. 

 

MAJOR NEWS

The Index Maintenance Sub-Committee of NSE Indices, a subsidiary of NSE, announced a few changes regarding the inclusion and exclusion of stocks from some major indices. Shares of InterGlobe Aviation and Max Healthcare Institute replaced Hero MotoCorp and IndusInd Bank in the Nifty 50. Such changes were made to the Nifty 100, Nifty Financial Services, Nifty Auto, Nifty Chemicals, Nifty Realty, Nifty Pharma, and Nifty Healthcare index.

 

IndusInd Bank made headlines several times in 2025 after reporting discrepancies in its derivatives portfolios in the March quarter. The stock witnessed a sharp sell-off and had plunged over 27% in one day after the bank said an internal review had noticed discrepancies. It ended the year on a negative note, down 10%. 

 

In an exchange filing on Mar. 10, IndusInd Bank disclosed that it had found discrepancies in the accounting of its derivatives portfolio and expected that these discrepancies would lead to an impact of INR 19.60 billion or about 2.35% on its net worth. Consequently, the bank reported a net loss of INR 22.36 billion for the quarter ended March.

 

Another company that saw its shares nosedive was InterGlobe Aviation after its airline, IndiGo, faced massive flight cancellations and delays due to failure to adapt to new flight duty time limitation rules by the Directorate General of Civil Aviation. This led to a shortage of flight crew and, consequently, chaos among passengers. Shares of the company plunged over 17% in the first half of December, but gained 11% in 2025.

 

In terms of mergers and acquisitions, ITC and Tata Motors recently demerged to unlock value and create focused entities. ITC spun off its hospitality business into ITC Hotels to focus on the fast-moving consumer goods aspect, while Tata Motors split into two automobile giants, separating the commercial vehicles vertical and the passenger vehicle segment with the Jaguar Land Rover business.  End

 

Edited by Avishek Dutta

 

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