The Indian stock market concluded 2025 with a decade-long bull run intact, marking its tenth consecutive year of gains. However, the celebrations were muted as the double-digit returns paled in comparison to the stellar performance of other major global and Asian markets. The year was characterized by significant underperformance, driven by persistent foreign fund outflows, a depreciating rupee, and anxieties surrounding a potential trade deal with the United States.
Global Outperformance Highlights India's Struggle
While Indian indices managed to post gains, they were sharply overshadowed by rallies worldwide. Data from domestic brokerage firm Motilal Oswal reveals a stark contrast. Global market capitalisation soared by 22.1%, adding a massive $27.4 trillion. In stark contrast, India's market cap saw only a marginal increase of 2.8% year-on-year.
The underperformance was not just against Western markets but also against regional Asian peers. South Korea's KOSPI led the charge with an astonishing 75.63% surge, while markets in China, Taiwan, and Japan delivered returns two to three times higher than India's Sensex. Notably, even Pakistan's KSE 100 index outperformed, rallying over 51% during the year.
Shrinking Share of Global Market Cap
This lag directly impacted India's standing in the global equity landscape. The country's share of the worldwide market capitalisation eased to 3.5% in December 2025, down from a peak of 4.6% in September 2024. Although India remains among the top ten contributors globally, Asian peers captured a larger portion of the pie, fueled by a rapid rise in demand for artificial intelligence and semiconductor-related stocks.
The pressure was compounded by foreign portfolio investors (FPIs) who continued to trim their exposure to Asia's third-largest economy throughout the year, especially in December. The selling was exacerbated by the rupee's slide, which further eroded dollar-denominated returns for overseas investors.
Valuations and the Road to Recovery in 2026
Despite the disappointing year, brokerages see a silver lining. Motilal Oswal points out that Indian markets are now well-positioned to recover from the underperformance witnessed in calendar year 2025. The optimism stems from improved earnings prospects, supportive domestic macroeconomic conditions, and a potentially better geopolitical environment.
Valuations have also become more reasonable. The Nifty 50 index is trading at a price-to-earnings multiple of 21.2x, close to its long-period average of 20.8x. Analysts believe any concrete evidence of a pickup in corporate earnings growth could lead to an expansion in valuations.
Echoing this view, Axis Securities noted that key headwinds—such as weak corporate earnings, stretched valuations, and tariff-related concerns—that dampened sentiment are likely to ease in the coming year. The brokerage expects 2026 to be more constructive, with the market transitioning from a phase of valuation-led consolidation to an earnings-driven growth cycle.
The report also highlighted the volatility in India's market cap-to-GDP ratio, which now stands at 133% of the estimated FY26 GDP, well above its long-term average of 87%.
