The year ahead: Global uncertainties set to influence asset prices

Since last Diwali, the stock market has traded almost flat. The Nifty and the Sensex have gained a nominal 5.6 per cent while the broader NSE 500 is up 3.7 per cent. The Midcaps 250 is up 4.5 per cent while the Small caps 250 is down 2.3 per cent. The returns from equity would be marginally positive after accounting for inflation. This is one of those phases in which risk-free instruments such as government securities have yielded better returns than the stock market. The last 12 months have been characterised by economic uncertainties and geopolitical tensions. While India continues to be the fastest-growing large economy, there are headwinds visible. Although growth in gross domestic product (GDP) in the first quarter accelerated considerably, estimates for full financial-year growth are cautious. 

The Ukraine war continues and so does conflict in West Asia despite the recent ceasefire in Gaza. In addition, the United States’ (US’) imposition of an inconsistent tariff regime, tighter immigration controls, and more expensive work visas have led to considerable uncertainties about trends in global trade. India’s exports, including services exports, may be particularly badly affected since it has been targeted for punitive tariffs by the Trump regime. The European Union, the US, the United Kingdom, and Japan are suffering from low growth and relatively high inflation. China has rolled out a sequence of stimulus packages to try to kick-start growth. Low economic activities in most major economies, coupled with ample supplies of energy and industrial metals, should normally have led to low commodity prices. But fears of supply disruptions and US tariffs scrambling supply chains have led to volatility in prices and currencies. Inflation is higher than it would have been without the Trump tariffs. The dollar is down versus most hard currencies. But the rupee is down versus the dollar. The rupee was trading at around 84 against the dollar last Diwali and it tested 88.87 levels recently. 

Among asset classes, the standout performers in terms of returns in the past year have been precious metals with platinum, silver, and gold all yielding returns in excess of 50 per cent. However, the lack of equity returns has not led to a lack of enthusiasm on the part of domestic investors. Households continue to pour money into mutual funds and directly into equities as well. Assets under management (AUM) with open-ended funds have moved from ₹66.8 trillion in September last year to ₹75.4 trillion this September and mutual funds have pumped around ₹4.5 trillion into equity during this period. Also between October 2024 and September 2025, there were 86 initial public offerings (IPOs), which raised ₹1.7 trillion, compared with ₹90,436 crore raised by the 88 IPOs in the corresponding period a year earlier. 

However, foreign institutional investors have been consistent sellers through the past 12 months, pulling around ₹1.5 trillion out of the Indian stock market. In effect, this means that the Indian stock market is being buoyed up entirely by domestic enthusiasm. Corporate results signal that consumption is still below par, with some pickup in rural and semirural geographies. It’s to be hoped that the recent broadbased cuts in rates of goods and services tax will provide some demand stimulus in the festival season. In that case, stock prices could see a sharp uptick. But a lot of households may choose to stick with traditional assets like gold, given the current atmosphere of uncertainty.