Indian Markets 2025: A Year That Redefined Resilience

The year 2025 has shown the true strength of the Indian economy as the benchmark NIFTY has given double-digit returns despite heightened geopolitical disruptions, shifting equations of trade, and sustained FII selling. And yet, the Indian markets not only withstood these headwinds but scaled new highs this year, with the Nifty crossing its all-time peak in November. We feel that the year 2025 will be remembered as one in which the domestic fundamentals triumphed over global noise.

The most striking feature of the year has been the divergence between foreign and domestic capital flows. Indeed, foreign institutional investors remained largely cautious through large parts of the year, nudged by geopolitical tensions, issues with US tariff actions, and the uncertainty surrounding global growth and interest rate trajectories.  

What stood out, however, was how well domestic investors made up for this gap. Mutual funds, insurance companies, and retail investors investing through systematic plans provided a steady source of support to the markets. Increasing financialization of household savings has changed the character of Indian equities. Market corrections were met with buying interest rather than panic, underlining the maturity of domestic participation.

This change is structural, not cyclical, and represents a long-term positive for market stability. Benchmark indices touched all-time highs, despite muted foreign flows. This was not driven solely by exuberance but also by earnings visibility and balance sheet strength across several sectors.

India's macroeconomic positioning remained buoyant with 2Q26 GDP growth at 8.2%, underpinned by 10-year low food inflation, 125bps cut in interest rates, manageable external balances, and sustained public capital expenditure. These factors created a conducive backdrop for corporate profitability and investor confidence, despite punitive tariffs faced by India in the past few months.

Commodity markets also played their defining role in 2025. Supported by global supply-side constraints, infrastructure-led demand, and an accelerating energy transition with most metals showing a strong rally. At the same time, gold and silver crossed all-time highs, reaffirming their role as safe-haven assets with 12-month returns exceeding 60% and 120%. Strong demand for precious metals came from heightened geopolitical uncertainty, sustained central bank buying, and concerns around currency stability globally. This made them an effective hedge in investor portfolios.

Sectoral performance through the year was selective rather than broad-based. The market leadership was held by capital goods and infrastructure and hospitals on the back of sustained growth. Public sector banks continued their transformation journey, riding on healthier balance sheets, improved asset quality, and sustained credit growth. However, companies dependent on external demand were under pressure. Information technology services companies delayed global tech spending as clients were cautious in a year when economic uncertainty remained high.

However, market momentum changed due to GST rationalisation/ interest rate cuts as Auto, Banks, NBFC and domestic consumption-related sectors have started showing positive inflows. Some pockets of the real estate sector also moderated after strong performance in previous years. 

In the broader landscape, India economy did better than many other emerging economies as they saw currency volatility, political instability, and acute capital outflows. Its consumption-led growth model, policy continuity, and reformist governance accorded a degree of insulation that investors are increasingly pricing in. While valuation premiums were a point of debate, they were supported by superior growth visibility and earnings quality.

Looking ahead to 2026, our outlook at PL Capital remains constructively optimistic, with an acknowledgement of the global risks. Earnings growth is expected to broaden, supported by easing inflation, improving liquidity conditions, and sustained government and private sector capex. Corporate balance sheets are healthier than in past cycles, and return ratios remain strong across several industries.

In the coming year, there is likely to be a greater focus on manufacturing, defence, infrastructure, and energy transition themes. India's positioning within global supply chains continues to strengthen, driven by policy initiatives and an improving competitiveness environment. Financial services are expected to remain a key pillar of growth, supported by expanding credit penetration and formalization of the economy. Expected pick up in nominal GDP will revive consumption demand and improve corporate profitability. 

One of the key questions for investors remains the return of FII inflows. In our view, FII participation is likely to improve gradually in 2026, contingent on greater clarity around global interest rates, geopolitical stability, settlement of trade issues. India's relative growth advantage, demographic strength, and reform momentum position it well to attract long-term foreign capital. Indian markets are not cheap nor are they expensive relative to its own long-term averages, however they remain at a premium to many other emerging markets. Importantly, even without aggressive foreign inflows, domestic capital has proved adept at sustaining market momentum.

In sum, 2025 underscored an important reality: Indian markets are no longer a singular function of global liquidity cycles. They are increasingly propelled by domestic savings, strong fundamentals, and long-term growth visibility. Looking ahead to 2026, disciplined investing, sector selectivity, and earnings quality would be paramount. We continue to believe that India's equity story remains one of the most compelling opportunities in the global emerging market landscape.

Amnish Aggarwal is Director Research, Institutional Equities at PL Capital.