Sensex, Nifty end 2025 as world’s worst performers. Can 2026 change the script?
Indian stock markets ended 2025 as the world's worst performers. Foreign investors pulled out billions due to currency depreciation and expensive valuations. However, 2026 offers hope. Supportive policies, easing trade risks, and potential rate cuts are expected to boost domestic growth and earnings. This could lead to a market recovery, attracting renewed investor interest.
India’s equity markets are closing 2025 with an uncomfortable global distinction. In dollar terms, the Sensex and the Nifty50 have delivered returns of just 4-5%, making India the worst-performing major equity market in the world this year, even as global peers staged powerful rallies.
While the Sensex and Nifty gained about 8-9% in rupee terms, a sharp depreciation in the currency eroded returns for foreign investors. The result: record foreign portfolio investor outflows of $18 billion, the highest ever from Dalal Street in a calendar year.
In contrast, global equities surged. South Korea’s KOSPI soared nearly 81%, Brazil’s Bovespa jumped about 48%, Germany’s DAX rose 38%, and the Stoxx Europe 600 climbed 32%. Even developed markets such as the S&P 500 and Nasdaq gained 17.4% and 21.6%, respectively. India, once the standout among emerging markets, found itself at the bottom of the league table.
The divergence reflects both global and domestic headwinds. Chinese and South Korean equities, particularly semiconductor and software stocks, rallied sharply on optimism around artificial intelligence and a broader re-rating from low valuation bases — themes largely absent in India.
“Nifty 50 and Sensex are one of the worst performing indices during CY25,” Sunny Agarwal of SBI Securities told ET Markets, citing a slowdown in earnings momentum, relatively expensive valuations, lack of a pure AI play, persistent supply of equity issuance, and geopolitical and trade-war uncertainties.
The valuation-growth mismatch has been especially punitive for foreign investors. According to Garima Kapoor of Elara Securities, foreign portfolio inflows into India are closely tied to nominal GDP growth, which has slowed materially since mid-2024.
“Since August 2024, FPIs have turned net negative, coinciding with slowing domestic growth amidst heightened global uncertainties,” Kapoor said. She added that over the past 15 years, India has attracted meaningful FPI flows at valuation premiums above 1.6 times MSCI Emerging Markets only once. With nominal GDP growth slipping below its 25-year average of 12%, that premium became harder to justify.
Trade policy shocks compounded the pressure. Elara estimates that US reciprocal and Section 232 tariffs pushed India’s effective tariff rate to about 33%, significantly higher than peers, worsening sentiment toward Indian assets.
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