Whalesbook
7 Defining Events of 2025: From Rupee at 91 to Mega FII Selling — Is Stage Set for Big Returns?
The Indian equity market stands at a critical inflection point as 2025 draws to a close, signaling a shift from liquidity-driven growth to a focus on earnings, policy push, and macroeconomic stability for returns in 2026. While benchmarks like the Nifty and BSE Sensex delivered close to 10% year-to-date gains, the broader markets, including the Nifty Midcap 100 and Nifty Small Cap 250, showed a more subdued performance. Amidst a buzzing IPO scene, continued FII outflows driven by currency volatility and global uncertainty, India's domestic economic fundamentals have remained notably resilient.
This analysis delves into seven significant developments that defined the Indian market landscape through 2025, providing crucial context for the path ahead. These events offer insights into corporate performance, trade dynamics, investor sentiment, and economic resilience, shaping expectations for the coming year.
Earnings Watch: Signs of Recovery
A primary concern for investors has been the slowing earnings growth trajectory. However, the second half of 2025 kindled hopes that corporate results have bottomed out, and a recovery is indeed taking shape.
Motilal Oswal highlighted that the second quarter FY26 earnings season underscored a resilient and diversified corporate recovery. This resurgence was notably led by industrial sectors, energy, and capital goods, along with mid and small-cap companies. While certain large-cap segments like private banks and automobiles presented headwinds, the broader market demonstrated strong profitability, stable margins, and balanced sector contributions, suggesting a healthier underlying corporate health.
Tariff Tussle: The Big US Concern
The India-US trade deal emerged as one of the most significant headwinds impacting market sentiment. A report by Franklin Templeton pointed out that tariffs continue to represent the "biggest risk to our outlook until a trade deal is finalized." India’s effective tariff rate for shipments to the United States stands at approximately 33%, a marked increase from previous levels.
This situation poses a dual risk. Firstly, it threatens to weaken India's exports, particularly as the US is its largest export destination. Secondly, it could lead to significant employment losses in highly labor-intensive sectors crucial to India’s global standing, such as textiles, apparel, gems, and jewelry, and leather goods.
FII Selling Continues
Persistent Foreign Institutional Investor (FII) selling has been another major source of worry for the equity market throughout 2025. FIIs have been net sellers of equities, recording outflows well over ₹3 lakh crore year-to-date. This trend was driven primarily by the global strength of the US dollar and India’s relative valuations compared to emerging market peers.
Although India's valuations have corrected closer to their long-term average, they still remain relatively expensive in absolute terms. This cautionary stance from foreign investors highlights ongoing concerns about global economic conditions and India's specific market dynamics.
2025: The Year of IPOs
While FIIs reduced their exposure in the secondary market, the primary market experienced a significant boom. The Initial Public Offering (IPO) frenzy continued unabated in 2025, with data from Prime Database indicating the launch of over 110 IPOs. This figure represents the highest number in at least 37 years of available data.
Franklin Templeton reported that total collections from these IPOs exceeded ₹1.75 lakh crore, nearing the previous peak of ₹1.82 lakh crore seen in 2024. Despite secondary market selling pressure, Foreign Portfolio Investors (FPIs) maintained a net positive stance in the primary market. Notable debutants included NSDL, HDB Financial Services, Tata Capital, LG Electronics, Lenskart, and ICICI Prudential AMC, among many others.
GST Rate Rationalisation Boosts Demand
In a strategic move to stimulate consumption, the government implemented several fiscal initiatives, including income tax rate moderation and a Goods and Services Tax (GST) rate cut. This rationalisation of GST rates provided a tangible boost to near-term demand across various segments such as autos, consumer goods, and manufacturing.
The longer-term benefits from these GST rate reductions are expected to offer continued support to earnings growth, potentially fostering a more robust economic expansion.
Rupee Tests Fresh Lows, Flirts with 91/$ Levels
The currency market also witnessed significant turmoil in 2025, with the Indian Rupee testing lifetime lows, flirting with the 91 per dollar level. The ongoing uncertainty surrounding the India-US trade deal, coupled with limited intervention from the Reserve Bank of India (RBI), kept the currency under considerable pressure.
GDP Shoots Up, Inflation Slides: Rates Head South
On the macroeconomic front, the setup looked far more resilient and constructive. India's Gross Domestic Product (GDP) surged above 8% in the second quarter, reaching multi-quarter highs. Concurrently, inflation, as measured by the Consumer Price Index (CPI), headed down, falling below the RBI's target range.
Headline CPI inflation showed a steep downward trajectory over the last 12 months, decreasing from 5.5% in November 2024 to just 0.3% by October 2025. Core inflation, excluding food and fuel, remained stable. This favorable "Goldilocks" period of high growth and low inflation prompted the RBI to cut rates cumulatively by 125 basis points between January and December 2025.
2026: Countdown to Hope
Pranav Haridasan, MD and CEO of Axis Securities, believes that while headline numbers tell one story, the underlying market structure strengthened significantly. He noted active primary markets, an expanding listed universe, steady domestic institutions, sustained retail participation, and the mainstreaming of technology-driven investing.
"In many ways, the market became broader, deeper, and a little more mature," Haridasan stated. He expressed a constructive outlook for 2026, emphasizing that "India’s growth engine, policy continuity, capex momentum, and earnings visibility provide comfort."
Impact
The developments discussed, from policy changes and trade tensions to market participation trends and macroeconomic indicators, collectively influence investor sentiment and strategic decision-making. The continued resilience of domestic fundamentals amidst global uncertainties, coupled with a positive earnings outlook, suggests potential for significant returns in the Indian equity market. However, geopolitical risks and valuation concerns remain key factors to monitor. The market is poised for a period where fundamental strength, policy support, and corporate profitability will be the primary drivers of stock performance.
Impact Rating: 9/10
Difficult Terms Explained
- Liquidity: The ease with which an asset can be converted into cash without affecting its market price. In financial markets, it refers to the availability of cash or easily convertible assets.
- Benchmarks: Stock market indices like the Nifty and BSE Sensex that are used to represent the performance of a broader market or a segment.
- Broader Markets: Refers to mid-cap and small-cap stocks, which are generally considered to have higher growth potential but also higher risk compared to large-cap stocks.
- FII (Foreign Institutional Investor): An investor established in a foreign country that invests in the domestic market of another country.
- IPO (Initial Public Offering): The process by which a private company first sells shares of stock to the public, becoming a publicly traded company.
- GST (Goods and Services Tax): A consumption tax levied on the supply of goods and services in India.
- GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
- Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
- RBI (Reserve Bank of India): India's central bank, responsible for monetary policy, regulation of the banking system, and currency issuance.
- Basis Points (bps): A unit of measure used in finance to describe the smallest change in a financial instrument. One basis point is equal to 0.01% (1/100th of a percent).
- Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, technology, or equipment.
- Valuations: The process of determining the current worth of an asset or a company. In stocks, it refers to how the market prices a company's stock relative to its earnings, cash flow, or book value.
- Corporate Recovery: The process by which a company's financial performance improves after a period of decline or distress.
- Tariffs: Taxes imposed on imported goods and services.