The Indian stock market, a standout performer in recent years, has seen its momentum stall in 2025. While major global indices have surged, the benchmark Sensex has entered a phase of consolidation, its returns eclipsed by several international peers and even its neighbour Pakistan.
India's Underperformance in a Booming Global Context
The Sensex managed to touch a record high in November 2025, but this milestone came after a gap of 14 long months. For the year, the index has delivered a rise of almost 9%, supported by a positive domestic macroeconomic setup. However, this growth pales in comparison to the rallies witnessed elsewhere.
In a striking contrast, Pakistan's KSE 100 index has skyrocketed by 52% this year, making it one of the world's top-performing markets. This surge is attributed to its relatively small market size, support from the International Monetary Fund (IMF), and domestic interest rate cuts that boosted liquidity.
The underperformance extends across Asia. South Korea's KOSPI leads the pack with a massive 68% surge. Other key markets like Japan, Hong Kong, and China have also outperformed India significantly, delivering returns of 29%, 28%, and 16% respectively over the past year. Even the mother market, the United States, has seen its S&P 500 index rise 15%, while the UK's FTSE 100 has gained 21%.
Key Headwinds: FII Exodus and Trade Tensions
Analysts point out that India's lag is not due to weak fundamentals but is largely a sentiment issue driven by foreign capital flight. Foreign Institutional Investors (FIIs) have been net sellers of Indian equities to the tune of ₹156,852 crore in the last one year. Harshal Dasani, Business Head at INVAsset PMS, highlighted that missing foreign flows have been a critical dampener.
Several factors have reduced the appeal of Indian equities for foreign investors. A weakening rupee and a slowdown in corporate earnings growth are primary concerns. Adding to the pressure is the steep 50% tariff imposed by US President Donald Trump on Indian exports to the US, which has created significant uncertainty around trade relations between the two nations.
Can the Indian Market Regain Its Mojo?
Market experts believe the stage is set for a strong recovery, pending clarity on key external factors. Dasani notes that conditions are broadly supportive: crude oil prices are below $70 per barrel, domestic GDP growth is robust at around 8.2%, the RBI has cut rates, and festive demand has buoyed economic activity. Retail and domestic institutional investors continue to be buyers.
The primary overhang remains FII caution, linked directly to India-US trade relations. Kranthi Bathini of Wealthmills Securities opines that a recovery in corporate earnings will be the trigger for FIIs to return, a scenario he expects to play out by the middle of 2026. He remains bullish on the Indian market's long-term prospects.
Global brokerages are also showing renewed confidence. Goldman Sachs upgraded its rating for Indian equities to "overweight" from "neutral" in November 2025, reversing its October 2024 downgrade. Similarly, HSBC raised its stance to "Overweight" in September, citing improved valuations, supportive government policies, and resilient domestic investor flows.
In summary, while 2025 has been a year of relative underperformance for Indian stocks against a vibrant global backdrop, analysts are optimistic that resolving trade uncertainties and a revival in earnings can reignite foreign interest and propel the market forward.
