The traditional Santa Claus rally has skipped Dalal Street this December, with the benchmark Sensex poised for its second consecutive year-end loss. However, a massive wave of buying by domestic institutional investors (DIIs) has prevented a steeper decline, effectively cushioning the market against significant foreign capital outflows.
A Departure from Seasonal Strength
Historical data reveals December is typically a strong month for Indian equities, delivering positive returns in about 75% of cases over the past 46 years. This year starkly contrasts with the surges of 8.2% in December 2020 and 7.8% in December 2023. The Sensex is currently on track for a modest decline of approximately 0.2% in December 2025, following a 2% drop in December 2024.
This makes it the sixth weak December finish in nearly a decade. The only worse performance in recent years was in 2022, when the index fell almost 4%. For the year 2025, after the sharpest single-month fall of 5.5% in February and declines in January, July, and August, December is set to be the fifth-worst month.
The Domestic Wall of Money
The key factor limiting the market damage has been relentless investment by domestic institutions. While foreign portfolio investors (FPIs) pulled out a massive ₹1.55 trillion during 2025, DIIs counteracted this with inflows of about ₹7.55 trillion.
"If it weren't for domestic institutional investors, markets would not have closed at current levels in 2025 and could have seen a much deeper correction," stated Anand K Rathi, co-founder of Mira Money. He added that without this support, markets could easily be at least 10% lower than current levels, attributing the flows partly to weaker returns in alternative asset classes like debt and real estate.
The divergence was particularly stark in December itself. DIIs were net buyers to the tune of ₹59,903 crore, while FPIs sold ₹11,830 crore. This reversed the trend from December 2024, when both were net buyers.
Macro Realities Trump Calendar Effects
Experts emphasize that the missing year-end rally is less about broken traditions and more a reflection of global macroeconomic headwinds. "Sticky global inflation, delayed rate-cut expectations, geopolitical risks, and volatile currency moves have kept FPIs defensively positioned," explained Nikunj Saraf, CEO of Choice Wealth. Investors are choosing to protect year-to-date gains rather than chase seasonal trends in such an environment.
Analysts also caution against over-relying on monthly seasonal patterns. "There is no fixed rule in markets that one month is always good and another is always bad," noted Rathi. Market movements are now driven more by economic fundamentals and news flow than calendar-based adages.
While the booming IPO market in 2025 has raised questions about liquidity diversion from secondary markets, fund managers assign it a limited role. Sandip Bansal of ASK Investment Managers pointed to a combination of pressures: a weaker rupee, continued overseas outflows, profit booking, global preference for AI-exposed markets, and uncertainties around the India-US trade deal.
For long-term investors, the current softness highlights a pivotal structural shift: Indian markets are increasingly anchored by domestic capital and guided by macro fundamentals. This growing resilience suggests that short-term corrections may present opportunities rather than signal alarm.
