2025 in the rear-view mirror doesn’t look easy at all, and that is why, as we start the countdown for the new year, the Indian equity market stands at a critical inflection point. Liquidity is no longer the primary driver of growth and we look towards the troika of earnings, policy push and macro stability to drive returns in 2026.
On the one hand you had the Nifty and the BSE Sensex hitting new highs and delivering close to 10% gains YTD, on the other hand, the broader markets lagged. The Nifty Midcap 100 has gained about 6% in the same period while the Nifty Small Cap 250 fell as much in the same period. IPOs continued to dominate the buzz but outflows continued on the back of currency volatility, global trade uncertainty. Yet, India’s domestic economic fundamentals have remained notably resilient.
Here is a look at the 7 big developments that made headline through 2025
Earnings watch
The slowing earnings growth trajectory has been one of the biggest worries for India. The second half of 2025 kindled hopes that the results have bottomed out and a recovery is beginning to take shape. Motilal Oswal highlighted that, “the Q2FY26 earnings season underscored a resilient and diversified corporate recovery, led by industrial sectors, energy, capital goods, and mid/small-cap companies. While select large-cap pockets such as Private Banks and Automobiles weighed on aggregate performance, the broader market demonstrated strong profitability, stable margins, and balanced sector contributions.”
Tariff tussle – The big US concern
The India–US trade deal has been one of the biggest headwinds. A Franklin Templeton report pointed out that tariffs continue to be the “biggest risk to our outlook until a trade deal is finalized.” India’s effective tariff rate for shipments to the US stands at 33%, markedly higher than before, as per their estimates. According to them this is a “risk not only via weaker exports (US is India’s largest export destination) but also through employment losses in the highly labor-intensive sectors like textiles and apparel, gems and jewelry and leather for India globally.”
FII selling continues
The other big worry has been the continuous FII selling in the equity market. So far in 2025, FIIs have net sold equities worth well over Rs 3 lakh crore. They have been net sellers for most months in 2025. The dollar’s strength globally coupled with how India’s relative valuations stack up Vs EM peers, have acted as restraining factors. Though the valuations for India have now corrected closer to the long-term average, in absolute numbers it still remains an expensive market.
2025 year of IPOs
FIIs could be ditching the secondary market but the primary market was buzzing. The IPO frenzy continued in 2025. As per data on Prime Database, more than 110 IPOs have been launched in this year. This is by far the highest as per the 37 years data available on the Prime Database website. As per Franklin Templeton, total collections exceed Rs 1.75 lakh crore, equivalent to the previous peak of Rs 1.82 lakh crore in 2024. Despite the selling seen in the secondary market, FPIs were net positive in the primary market. Some of the marquee debutants of this year include NSDL, HDB Financial Services, Tata Capital, LG Electronics, Lenskart, ICICI Prudential AMC and many others.
GST rate rationalisation
The government, in a bid to boost consumption, undertook several fiscal initiatives, such as income tax rate moderation followed by a GST rate cut. This GST rate rationalisation led to a boost in near-term demand in several segments like autos, consumer goods and manufacturing. The longer-term benefit from GST rate cuts may also provide support to earnings growth.
Rupee test fresh lows, flirts with 91/$ levels
Not just for the equity market, 2025 was also a key year for the currency market. The rupee tested to lifetime lows below 91 per dollar. The ongoing US-India trade deal uncertainty coupled with limited intervention by RBI kept the currency under pressure.
GDP shoots up, inflation slides – Rates head south
Meanwhile, the macro set up looked far more resilient. The GDP shot up above 8% to multi-quarter hights in Q2 while the inflation headed down below the RBI’s range. Headline CPI inflation showed a steep downward trajectory over the last 12 months, starting at 5.5% in November 2024 and falling to just 0.3% by October 2025. Core inflation (CPI excluding food and fuel group), in contrast, remained stable. Given the Goldilocks period of high growth, low inflation, the RBI cut rates. It has cumulatively cut rates by 125 bps between January- December, 2025.
2026: Countdown to hope
Sometimes, though the real action is not in headlines. You have to dig deeper. Pranav Haridasan, MD and CEO, Axis Securities believes that, “Below the headline numbers, the market structure actually got stronger. Primary markets stayed active, the listed universe widened, domestic institutions held steady, retail participation didn’t fade, and technology-driven investing became more mainstream. In many ways, the market became broader, deeper, and a little more mature.”
He believes that “As we step into 2026, the outlook is constructive, but with both feet on the ground. India’s growth engine, policy continuity, capex momentum and earnings visibility provide comfort..”