Year-ender 2025: India stocks lag EM, Asia in worst showing in decades

India's benchmark equity indices — BSE Sensex and NSE Nifty — are poised to close calendar year 2025 (CY25) with single-digit gains, recording their worst performance compared to global peers in decades.

 

While the Nifty50 is up 10.7 per cent so far this year, the Sensex has risen 9.5 per cent with gains capped, primarily, by global macro uncertainties, including US tariffs, as well as modest earnings growth.

 

Notably, the Sensex and the Nifty returns in 2025 significantly underperformed global peers, with the MSCI India Index trailing the MSCI Asia Pacific Index by its widest margin since 1998. Further, the index's underperformance versus the MSCI Emerging Markets Index is the worst seen since 1993, according to Bloomberg data.

 

Individually, Japan’s Nikkei and South Korea’s Kospi are up 28 per cent and 72 per cent, respectively, so far in 2025 while China's CSI 300 index is up 17 per cent. Hong Kong's Hang Seng has risen 29 per cent this year.

 

On Wall Street, the S&P 500 index has gained 17 per cent while the tech-heavy Nasdaq 100 has advanced 21 per cent, data shows.

 

Analysts attribute the underperformance of Indian stocks in 2025 to a host of uncertainties, including US tariffs, modest earnings growth, and lower government capital expenditure (capex) on the domestic front.

 

According to Nandish Shah, AVP– PCG Research & Advisory, (Fundamental) Wealth Management, Motilal Oswal Financial Services, Indian equities have significantly underperformed Asian and emerging market (EM) peers in 2025 due to a prolonged earnings slowdown.

 

"Lower government capex, lower consumption due to higher inflation, the Russia-Ukraine war, and other global macro uncertainties also impacted the performance," he said.

 

Add to it, high valuations, earnings downgrades, and weak earnings growth expectations for 2025-26 (FY26) also contained upside in the markets.

 

Lack of AI play

 

According to analysts, one of the defining global market trends of 2025 was global funds' favourable attitude towards markets with greater exposure to artificial intelligence (AI). And India's limited exposure to the theme further weighed on the returns, said Shrikant Chouhan, head of equity research at Kotak Securities.

 

Notably, China and Japan were the front runners in foreign portfolio investor (FPI) inflows race in Asia in 2025, even as most Asian markets saw global fund outflows, led by India.

 

China attracted inflows of $96,225 million as of September 2025 (the latest available data) while Japan recorded inflows of $46,979 million as of December 12, 2025, according to Bloomberg. India, on the contrary, witnessed a foreign equity outflow of about $17,731 million.

 

"While global markets benefited from direct exposure to AI platforms and hardware leaders, Indian information technology (IT) companies remained in a transition phase," noted Shah of Motilal Oswal.

 

Understandably, the Nifty IT is down 10 per cent in 2025 as against the Magnificent 7's (in the US) and the Philadelphia Semiconductor Index's 20 per cent and 40.5 per cent surge, respectively.

 

Bulls to make comeback on D-St in 2026?

 

That said, analysts expect Indian markets to bounce back in CY26 compared to global peers, driven by several favourable factors, including goods and services tax (GST) rate rationalisation, reductions in interest rates, a normal monsoon, multi-year low inflation, and weak oil prices.

 

"Our outlook for the Indian equity market in CY26 is positive, underpinned by an improved earnings outlook, strengthening domestic consumption demand, and a likely stable macroeconomic environment," Chouhan added.

 

Kotak Securities pegs Nifty's December 2026 target at 29,120 in their base case, nearly 13 per cent above current levels.

 

Emkay Global, however, said that the upside in the Indian stock markets will only come through an India-US trade deal that substantially reduces tariffs on Indian exports.