As 2025 enters its final month, Indian investors are keenly focused on one pivotal question: how will the benchmark Nifty 50 index close the year? The market has already provided a taste of volatility, scaling a fresh peak on the first trading day of December before succumbing to profit-booking and a weakening rupee, ultimately closing marginally lower.
A Record Start Meets December's Mixed Legacy
The Nifty 50 index began December with a bang, surging to an all-time high of 26,325.80 points during the session. However, the initial euphoria was tempered by jittery sentiment, leading the index to close at 26,175.75, down 0.10% for the day. This whipsaw action sets the stage for a month with a historically complex performance record.
An analysis of the past decade reveals no clear pattern for December. The index has declined in six out of the last ten years. Despite this, the average return for the month remains positive, above 1%. This statistic highlights a key trend: when December performances are strong, they tend to be decisively so, with historical swings ranging from -3.5% to 8.15% in positive years. These moves are often fueled by year-end phenomena like foreign institutional investor (FII) portfolio resets, consistent domestic SIP inflows, and institutional window dressing.
Analysts Forecast a Strong Finish for 2025
Despite the historical volatility, the current macroeconomic backdrop is leading many analysts to predict a robust year-end rally for the Nifty 50. Projections suggest a potential gain of 1% to 5% this month. This optimism is rooted in several supportive factors: robust GDP growth, the potential for a Reserve Bank of India (RBI) rate cut, and expectations of stronger corporate earnings for the third quarter.
Vikas Gupta, CEO & Chief Investment Strategist at Omniscience, aligns with this view. He stated the index could be 5% higher by month-end, driven specifically by RBI's monetary policy actions and its outlook for the remainder of the fiscal year 2026. Analysts also note that any positive development regarding a potential India-US trade deal would provide additional support to market sentiment.
Navigating the Liquidity Crosscurrents
The bullish outlook for large-cap indices like the Nifty 50 exists alongside significant headwinds, particularly concerning liquidity and broader market performance. A major factor is the anticipated behavior of foreign institutional investors. "FII flows are likely to be net outflows due to tax loss harvesting at the end of their tax year," Gupta explained. However, he added that if these outflows are smaller than expected, it would further bolster the index.
This year's market resilience is largely credited to domestic investors. Despite facing brutal FII selling worth ₹147,164 crore, the Nifty 50 has managed to post a 10% gain in 2025, thanks to steady domestic inflows holding the fort.
However, this support has not extended evenly across the market. Analysts foresee continued pain for mid-cap and small-cap stocks. G Chokkalingam, Founder of Equionomics Research, expressed a positive view on the Sensex and Nifty, forecasting a further 3–5% rise by March-end. But he struck a cautious note on smaller stocks: "But small and midcaps will continue to remain weak. The problem is liquidity."
He detailed significant liquidity drains: IPOs have absorbed around ₹1,60,000 crore, promoters have sold over ₹1 lakh crore, and a third of small-cap stocks have already fallen 10% to 40%. "All of this has reduced liquidity in the hands of retail investors," Chokkalingam concluded, making him bullish on index stocks but wary of the broader market. This divergence is evident in the year-to-date performance, with the Nifty Midcap 100 and Nifty Smallcap 100 indices trailing the Nifty 50, returning 7% and -5% respectively.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
