In a year marked by global trade tensions and geopolitical uncertainty, Indian equity markets demonstrated exceptional fortitude. The benchmark Sensex concluded 2025 with a gain of 8%, a notable achievement considering it weathered a mid-year maximum drawdown—or peak-to-trough decline—of 9%. This performance underscores a period of relative calm for Indian stocks amidst external storms.
A Historical Pattern of Resilience
This stoic behavior is not entirely unprecedented. A Mint analysis reveals that over the past three decades, the Sensex has finished in positive territory in 23 out of 30 years. The year 2025 joined a select group, becoming only the eighth year in the last 30 where the intra-year decline was contained at 10% or less. Historically, the average intra-year decline for the Sensex has been nearly 20%.
This pattern suggests that equity markets often absorb shocks from events like tariff wars or geopolitical flare-ups, unless they escalate into a full-blown systemic crisis such as a global pandemic. The data indicates a clear trend: when annual declines stay below the 20% threshold, the year has ended in negative territory only twice in three decades.
The Domestic Capital Cushion
Experts point to a structural shift underpinning this stability. The growing depth of domestic capital is increasingly insulating Indian markets from foreign volatility. Harsh Gupta Madhusudan, fund manager at Ionic Asset's PIPE Fund, notes that India's shallow drawdown reflects a rare balance. Steady inflows from systematic investment plans (SIPs) are being matched by fresh paper supply from initial public offerings (IPOs), qualified institutional placements (QIPs), and promoter exits.
"With FPIs trimming secondary exposure while domestic money keeps coming in, the market has effectively been range-bound rather than fragile," Gupta Madhusudan explained. This dynamic has prevented sharp moves in either direction, creating a contained trading environment.
Buying the Dip: A Viable Strategy?
The market's behavior raises a key question for investors: is 'buying the dip' a sound default strategy? Rajesh Palviya, Senior Vice President of Research at Axis Securities, believes the historical data supports this approach. "Historically, corrections of up to 20% have tended to represent time or valuation adjustments rather than structural damage," he stated.
From a technical perspective, Palviya added that such drawdowns usually preserve long-term trend supports, making them opportunities for accumulation rather than signals to exit. However, the risk profile changes dramatically when corrections deepen. The analysis shows that once a drawdown exceeds 35%—as witnessed during the crises of 2001, 2008, and 2020—the probability of the year ending in the red increases drastically. Corrections of this magnitude often break key supports, signaling deeper liquidation and loss of confidence.
Is the Low-Volatility Era Here to Stay?
While the last 12-18 months have resembled a low-volatility phase, market observers caution against viewing it as a permanent new regime. Gupta Madhusudan characterizes it as less of a shift and more a function of structural buyers and sellers offsetting each other. He notes that a meaningful return of foreign portfolio investor (FPI) flows could quickly normalize volatility levels, even if India remains relatively calmer than its global peers.
The story of 2025 for Indian equities is one of historical repetition and structural evolution. The market followed its long-term script of rewarding investors who endure mid-way pain, while simultaneously showcasing the maturing influence of domestic capital in dictating its trajectory.
