Foreign capital outflow combined with the depreciation of the rupee, the Indian stock market is expected to underperform its Asian counterparts by the highest level in thirty years.

Under the dual pressures of foreign capital outflows and rupee depreciation, the Indian stock market is ending the year with its worst performance compared to its Asian peers in nearly thirty years. With global fund managers cutting their exposure to India, the market's rebound since September has fizzled out. Foreign funds withdrew $1.7 billion in December, leading to a record outflow of $17.9 billion for the year. High valuations, slowing profit growth, and a lack of reliable AI-related stocks have weakened market sentiment, causing Indian stocks to lose favor with overseas investors this year. Meanwhile, the rupee depreciation has intensified selling pressure, eroding returns for foreign investors. The lack of progress in trade negotiations between India and the US with the US imposing the highest tariffs in Asia on India has caused the rupee to repeatedly hit record lows in recent months. Pranav Haridasan, CEO of Axis Securities, stated that 2025 is not an easy year for the Indian capital markets. However, he added that the challenging year of 2025 may lay the foundation for a more stable future with potential mean reversion. On the positive side, the Indian stock market is still on track for its tenth consecutive year of growth, with the NSE Nifty 50 index rising over 10% this year. Strong demand from local institutions investing around $81 billion in the stock market in 2025 has been a key support for returns in the Indian market this year. Strategists from Nomura Holdings and Citigroup forecast that as long as corporate profits continue to improve and policies aimed at supporting domestic demand are effective, the Indian stock market will further rise in 2026 and potentially outperform other emerging market peers. Despite this, the near-term outlook for Indian assets remains uncertain. Data shows that Indian domestic stocks rarely start the new year on a strong note, with the NSE Nifty 50 index averaging a 1.1% decline in January. Furthermore, after a record-breaking year in 2025, the thriving initial public offering (IPO) market will continue to channel liquidity into newly listed companies in 2026, with Kotak Mahindra Capital and Goldman Sachs predicting IPO fundraising in India next year to exceed $25 billion.