Sensex and Nifty End 2025 as World’s Worst Performers: Can 2026 Change the Script?
India’s equity markets closed 2025 with the unwanted distinction of being the worst performers globally, in dollar terms, as foreign investors withdrew a staggering $18 billion.
Unfortunate Performance Indicators
– The Sensex and Nifty50 generated returns of a mere 4-5% in dollar terms, placing India at the bottom of the equity performance table despite a robust performance from global markets.
– In rupee terms, the indices saw a modest gain of 8-9%, but a sharp depreciation of the currency severely impacted returns for foreign investors.
– Record outflows of $18 billion marked the highest annual withdrawal from Dalal Street by foreign portfolio investors (FPIs).
– Meanwhile, global equity indices outperformed significantly:
– South Korea’s KOSPI: up 81%
– Brazil’s Bovespa: up 48%
– Germany’s DAX: up 38%
– Stoxx Europe 600: up 32%
– S&P 500: up 17.4%
– Nasdaq: up 21.6%
Factors Behind the Disparity
Several factors contributed to India’s dismal performance compared to global peers:
– Earnings Slowdown: Analysts highlight a persistent slowdown in earnings momentum, leading to relatively high valuations and minimal focus on evolving trends like artificial intelligence (AI).
– Trade and Geopolitical Fears: Ongoing geopolitical uncertainties compounded pressures on valuations. Increased tariffs, particularly the US Section 232 tariffs, elevated India’s effective tariff rate to approximately 33%, significantly higher than those in peer countries.
– Nominal GDP Growth: According to experts, the decline in nominal GDP growth to below its 25-year average of 12% has made valuation premiums challenging to justify.
Is 2026 the Turning Point?
Despite the challenging year, market strategists are cautiously optimistic about a recovery in 2026 due to improving domestic conditions:
– Recovery Forecast: Nominal GDP growth is expected to rebound to 10% in FY27, up from around 8% in FY26, as valuations start to align more favorably.
– Policy Support: The current policy mix is now more growth-oriented, with measures such as income tax reductions and increased public expenditure stimulating consumption, which constitutes nearly 55-60% of GDP.
– Potential Trade Deal: Progress on an India–US trade agreement may further lower effective tariff rates, enhancing market sentiment.
Positive Signs for the Future
Market indicators suggest potential recovery:
– Earnings growth is set to revive, with forecasts for 12.5% year-on-year profit growth this quarter, marking the first double-digit growth in six quarters.
– Valuations are becoming more attractive, with predictions suggesting the Nifty could reach 29,300 by the end of 2026, yielding a 12% return based on forward earnings.
Conclusion: A New Chapter for Indian Equity Markets?
The debate heading into 2026 revolves around whether India can regain its status as an emerging market leader after a year undermined by foreign investor withdrawals and poor performance.
– Market dynamics indicate that the factors contributing to India’s equity markets’ struggles may begin to shift, paving the way for recovery.
– If the anticipated policy measures and economic indicators align, 2026 could indeed represent a turning point, shifting India away from the dismal performance of 2025.
As stakeholders assess the landscape, their focus will be on whether these changes translate into sustainable outperformance, determining the fate of India’s equities in the years to come.