If global markets ran a marathon in 2025, Indian equities were clearly trailing the pack. While South Korea saw Kospi skyrocketed nearly 76%, Japan’s Nikkei soared over 25%, and Hong Kong’s Hang Seng climbed almost 30%, China’s Shanghai Composite posted gains of over 16%.

In the west, Wall Street also bagged doubled digit gains with tech heavy Nasdaq up 21%, S&P 500 rising 17.5%, and the Dow Jones advancing over 14%. Indian benchmark indices, Nifty50 and BSE Sensex, however, struggled to keep pace. Against these strong gains in global markets, India’s benchmarks posted more modest returns, with the Nifty 50 rising over 10% and the Sensex ending the year 8.55% higher. On December 31, the Sensex closed at 85,220.60, up 545.52 points, while the NSE’s Nifty 50 finished in the green at 26,129, gaining 190 points.

Despite the Nifty 50 and Sensex recently touching record highs, broader market sentiment remained muted, with nearly half of the NSE’s top 500 stocks still trading below the benchmark. Though the indices ended 2025 in green, the relative underperformance has left investors struggling with two key questions as the calendar turns: Why did Dalal Street remain muted in 2025? And importantly, what’s the outlook for Nifty50 and Sensex in 2026?

So, what dragged Indian benchmarks down?

According to experts that TOI spoke to, the stock market was dragged down by a combination of factors, both internal and external. Factors like US-India trade deal delay, not participating in the AI race, muted corporate earnings, and FII selling weighed the market down.Earnings slowdownMuted corporate earnings emerged as one of the major reasons behind the stock market’s underperformance. VK Vijayakumar, chief investment strategist at Geojit Investments, told TOI that “during the last six quarters, earnings growth has been in single digits.

In the long run, the market is a slave of earnings.” So the drag down was, ultimately, the market's response to weak earnings.Despite the benchmarks trading near lifetime highs, the overall market appeared weak, weighed down by the deceleration in earnings momentum since the June 2024 quarter, following a robust 18% CAGR during FY20–FY25, said Sunny Agrawal, head of fundamental research at SBI Securities. Sharp divergenceAccording to Ankit Soni, associate vice president – fundamental research at Mirae Asset Sharekhan, market returns over the last one-and-a-half years remained largely single-digit, with a stark gap across segments.“Large-cap indices delivered around single-digit returns, while mid and small caps underperformed by nearly 10%,” he said, highlighting the high variability in returns and sustained weakness in the broader market. Agrawal also noted that “despite benchmark indices trading close to lifetime highs, the broader market continued to trade on weaker footing.”FII sellingMarkets hit new highs towards the end of the year, but failed to hold those levels.