Indian Equity Markets concluded the calendar year 2025 on a positive note, with the Nifty index delivering a 10.00% gain despite facing periods of consolidation throughout the year. The performance marked a gradual recovery phase for the domestic equity markets.

Market Performance and Technical Outlook

The Nifty index continues to trade within a sideways trend, requiring sustained movement above its 20-day Simple Moving Average (SMA) to confirm underlying strength. Technical analysts have identified key support and resistance levels for upcoming sessions:

Market volatility indicators showed a calming trend, with India VIX declining 2.09% to settle at 9.48 levels, suggesting reduced fear sentiment among market participants.

Institutional Investment Activity

Wednesday's trading session witnessed contrasting behavior between foreign and domestic institutional investors:

The divergent investment patterns highlight the continued preference of domestic institutions to support market levels during foreign selling pressure.

Currency Performance

The Indian rupee faced significant headwinds throughout 2025, declining 5.00% against major currencies. The depreciation was attributed to persistent capital outflows from foreign investors and heightened dollar demand from importers, positioning the rupee among the worst-performing Asian currencies for the year.

Market Outlook

Analysts anticipate steady growth prospects for 2026, supported by several fundamental factors including a recovery in corporate earnings, gradual revival in private sector investment, and support from recent and forthcoming government policy measures. The follow-up trading sessions will be crucial in determining whether the current sideways trend can transition into a sustained upward movement.

Indian equity markets are concluding 2025 with a complex performance narrative - achieving their 10th consecutive year of positive returns with approximately 10% gains, yet simultaneously recording their biggest underperformance versus Asian peers in nearly three decades. The NSE Nifty 50 Index, closing near the 26,000 level, reflects this dual reality of domestic resilience amid regional weakness.

Record Foreign Outflows Pressure Markets

Foreign institutional investors have significantly reduced their exposure to Indian markets throughout 2025, with outflows reaching unprecedented levels. The selling pressure intensified in recent months as global fund managers reassessed their positions.

Currency Weakness Compounds Challenges

The Indian rupee has experienced significant depreciation during 2025, sliding from ₹85/USD at the beginning of the year to ₹90/USD currently. This currency weakness has eroded returns for overseas investors and contributed to the sustained foreign selling pressure. The lack of progress on a trade deal with the US, which has imposed the highest tariff rates in Asia on India, has further pressured the rupee to test a series of record lows.

Domestic Support Provides Market Foundation

Despite foreign outflows, strong domestic institutional demand has been instrumental in supporting market performance. Local institutions have invested approximately $81 billion into equities during 2025, effectively offsetting foreign selling and underpinning the market's positive returns. This domestic support has enabled India to join Japan and Argentina in the rare global club of markets posting 10 consecutive years of gains.

Market Challenges and Structural Issues

Several factors have contributed to Indian stocks losing favor with overseas investors during 2025. Lofty valuations, slowing earnings growth, and the absence of credible AI-linked companies have dampened international sentiment. The combination of these structural challenges with currency volatility has created headwinds for foreign investment flows.

Policy Support and Economic Cycles

Government and monetary policy measures have provided crucial support throughout 2025. The economic cycle has benefited from tax benefits announced in the Budget, RBI interest rate cuts, and GST rate reductions implemented in September. The 10-year G-Sec yield has declined to 6.58% from 6.80% at the beginning of 2025, reflecting improved market conditions. Additionally, the corporate profit cycle has shown improvement, with earnings upgrades visible for Nifty 50 companies in FY26 and FY27 estimates.

Market Outlook and IPO Activity

Looking ahead, the near-term outlook remains mixed. Historical data shows the Nifty 50 Index loses an average 1.10% in January, suggesting potential early-year volatility. However, the booming IPO market is expected to continue, with forecasts indicating proceeds could exceed $25 billion in the coming year, potentially diverting liquidity toward new listings. Strategists from major institutions expect Indian equities to potentially outperform emerging-market peers, provided corporate earnings continue improving and policy measures supporting domestic demand gain traction.