After displaying sharp outperformance over the last few years, the Indian stock market has taken a back foot in 2025. The returns offered by major global peers have eclipsed Sensex’s performance as the index remained in consolidation mode amid several headwinds like steep tariffs, record FII outflows and fading earnings growth.
The extent of India’s underperformance is such that it’s also lagged its neighbour Pakistan, whose stock market has not only given high double-digit returns but also remains one of the top-performing global markets.
India vs Global markets
Sensex touched a record high this year. Yet, this feat was achieved after a gap of 14 months in November this year. The index has risen almost 9%, as the macro setup remained positive.
Yet, when compared to Pakistan, it’s almost a sixth of the 52% return offered by the KSE 100 index this year, making it one of the best-performing markets globally. Pakistan’s surge is explained by its small market size alongside IMF support and domestic rate cuts that spurred liquidity.
Meanwhile, India’s underperformance this year is not about weak fundamentals, but about sentiment and missing foreign flows, said Harshal Dasani, Business Head at INVAsset PMS. Foreign investors have net sold Indian equities worth ₹156,852 crore in the last one year.
The weakness in the rupee, along with earnings slowdown, has reduced the Indian stock market’s appeal for the FIIs. Another factor that has driven them away is the steep 50% tariff imposed by US President Donald Trump on Indian exports to the US.
Among other global markets, South Korea’s KOSPI has topped the charts, with a massive 68% surge. Other Asian peers like China, Hong Kong and Japan have also delivered two or three times the returns by Sensex, having risen 16%, 28% and 29%, respectively in a year.
The mother market US has also delivered a stellar rally. Its broader S&P 500 index has seen a 15% rise. Meanwhile, the UK’s FTSE 100 index has gained 21%.
Can Indian stock market reverse underperformance?
Analysts believe mojo can return to the Indian stock market once clarity emerges on the India-US trade deal front and flows return.
Dasani said that on most domestic and global parameters, India is positioned for a strong next leg. “Globally, conditions are supportive. Crude prices have remained below USD 70 per barrel, easing inflation and external pressures. Domestically, GDP growth is around 8.2%, RBI has cut rates, tax measures have supported consumption, and festive demand has lifted activity. Retail and domestic institutions continue to buy. The only overhang is FII caution, largely linked to uncertainty around India-US trade relations,” he opined.
Pegging his view on when FIIs can likely return, Kranthi Bathini of Wealthmills Securities, said that earnings recovery coming to track will bring FIIs to the Indian markets again. He expects this to happen in the middle of 2026. Meanwhile, he remains bullish on the Indian stock market.
Global brokerages, too, have displayed their confidence in Indian equities, upgrading their ratings. Goldman Sachs, earlier in November, reversed its October 2024 downgrade, as it raised its rating for the Indian stock market to “overweight” from “neutral”.
Similarly, in September this year, HSBC had upgraded its stance on Indian equities from “neutral” to “Overweight”, citing improved valuations, supportive government policies, and resilient domestic investor flows.