2025 will be remembered as the year of the “Great Tug-of-War” in Indian equities.
While benchmark indices (Nifty 50 & Sensex) managed a ~10% gain and hit fresh highs, the underlying flow dynamics tell a story of a massive structural shift in ownership.
📊 KEY MARKET DATA:
1️⃣ Record Foreign Exodus (FPI Outflows): Foreign Portfolio Investors sold a record ₹1.6 trillion ($18 billion) in 2025.
- The Drivers: Stretched valuations, US tariff fears, and geopolitical headwinds.
- Sector Hit: IT stocks took the brunt, accounting for nearly 50% of the outflows due to US demand uncertainty.
2️⃣ The Domestic Fortress (DII Resilience): Domestic liquidity has become the new backbone of the market.
- Ownership Shift: Foreign ownership slid to a 15-year low of 16.9%.
- Domestic Rise: Domestic Mutual Funds’ holdings climbed to a record high of 10.9%, effectively absorbing the foreign sell-off and cushioning volatility.
3️⃣ Performance Context: Despite the resilience, India underperformed its Asian and Emerging Market peers this year, signaling a period of consolidation and recalibration.
🔮 2026 OUTLOOK: A Reversal on the Cards? Analysts (Motilal Oswal, Elara Capital) project a potential revival in foreign inflows by Q1 2026.
- Catalysts: Easing valuations, stabilizing earnings, US rate cuts, and accelerating public capex.
💡 INVESTOR TAKEAWAY: The “India Story” is no longer solely dependent on foreign hot money. The deepening of domestic capital markets provides a floor, but valuation comfort remains the key to unlocking the next leg of foreign inflows.
👇 Fund Managers: Do you see current valuations as an entry point for 2026, or is there more correction needed?