2025 was not a memorable year for the Indian stock market bulls when compared with the sharp gains seen across broader Asian peers, as bouts of volatility hit domestically-focused stocks.
Market sentiment was weighed down by tariff worries, currency pressures, and sustained outflows from foreign portfolio investors (FPIs), making Indian equities the worst underperformer in Asia in nearly three decades.
However, select pockets delivered returns well above the Nifty 50’s surge of 10.6% in 2025, supported by improving fundamentals, policy tailwinds, and sector-specific demand. This underscored investors’ increasingly selective approach during a challenging period.
Overall, five sectors, Nifty PSU Bank, Nifty Metal, Nifty Auto, Nifty Defence, and Nifty Private Bank, outperformed the benchmark by a wide margin.
Nifty PSU Bank tops sectoral charts
PSU banking stocks emerged as the clear winners in 2025 as investors remain optimistic that a pickup in credit growth, a recovery in margins, and strengthening asset quality will continue to support earnings momentum and re-rating prospects for the sector.
More than half of the constituents of the Nifty PSU Bank index have delivered returns of over 20%, with some extending their annual rally to a fifth consecutive year.
Tracking the sharp gains across the majority of constituents, the Nifty PSU Bank index closed the year with a strong 30.5% rally, marking its fifth straight year of gains and emerging as the top sectoral performer.
The index broke out of a 10-month consolidation phase in February, with the rally further accelerating following the government’s consumption-boosting measures, including GST rate cuts that improved liquidity and the credit demand outlook.
Rising metal prices power rally in stocks
Broader metal stocks remained in the spotlight throughout the second half of 2025, as a record-breaking run in select base and precious metals led to a sharp uptick in demand for the shares of domestic metal companies, with higher global prices naturally boosting operating profits.
Twelve of the 15 constituents of the Nifty Metal index closed 2025 higher, driving the index to a 29% rally and marking its sixth straight year of positive returns.
Beyond rising geopolitical tensions, the rally in commodity prices also received support from a falling US dollar, which made metals cheaper for global buyers, as they are priced in dollars.
While gold, silver, and platinum occupied the top spots in terms of gains in 2025, base metal prices also posted robust gains, supported by expectations of US Federal Reserve rate cuts, easing global trade tensions, and improving growth prospects in China.
Policy tailwinds drive auto stocks higher
Sentiment towards auto stocks improved sharply following the government’s GST rationalisation, which made entry-level cars and scooters cheaper and has begun to reflect in higher sales figures reported by automobile companies in recent months.
Along with GST rate cuts, a series of RBI rate cuts and earlier income tax reductions improved re-rating prospects for the sector, turning the Nifty Auto index into the third-best sectoral performer with a 23.45% surge in 2025.
This marked the sixth straight year of gains for the index, and from the Covid-19 low, it has risen by 539%.
Defence sector extends long-term bull run
The performance of defence stocks can be seen in two halves, with the first half dominated by solid gains as the Nifty India Defence index scaled a fresh all-time high of 9,195 in June, powered by a confluence of geopolitical uncertainty and policy-driven tailwinds.
However, the sharp rally pushed valuations to unsustainable levels, and easing geopolitical tensions forced investors to reconsider their portfolios, removing the sector from the bull’s eye.
Nevertheless, the strong gains in the first half helped the index close another year with a stellar surge of 19.30%, marking its sixth consecutive year of gains.
Private bank stocks recover after a muted show
Along with PSU banks, private sector banks also posted healthy gains in 2025, with the Nifty Private Bank index rallying 15.90%, marking its best annual performance since 2022, when it surged 21.20%.
The 2025 rally also emerged as a turnaround year for the sector, as it had finished 2024 largely unchanged.
Eight out of the 10 constituents of the index ended the year with positive returns, with RBL Bank topping the chart after rallying 100%, followed by IDFC First Bank and Federal Bank, which gained 36% and 33.54%, respectively.