Analysts level to weak company earnings, persistent international portfolio investor (FPI) promoting, and elevated valuations as the important thing causes behind the muted efficiency.
From being one of many strongest performers amongst world and rising markets only a yr in the past, Indian equities have slipped to the underside of the efficiency desk in what many market individuals are calling a “beautiful reversal of fortune.”
Thus far in 2025, FPIs have pulled out Rs 1.4 lakh crore from Dalal Road, reallocating investments to different international locations.
In line with Naveen Chouhan, “The persistent FII promoting pattern over the previous yr can largely be attributed to 2 major components: superior efficiency of developed markets and foreign money considerations. FIIs are reallocating capital to their house markets and different developed economies the place returns have been extra engaging relative to rising markets. The Indian rupee has weakened relative to main world currencies.”
Earnings have additionally failed to satisfy expectations. Company earnings progress for Nifty 50 firms has been restricted to mid-single digits, with delayed demand restoration and enter price pressures weighing on margins.“In case you have a look at final yr, valuation peaked round September-end and with company earnings progress moderating to mid-single digits, it’s no shock that fairness indices have hardly delivered any returns over the previous yr,” mentioned Krishnan V R, Chief of Quantitative Analysis, Marcellus Funding Managers.Market sentiment has additionally been hit by political and policy-related uncertainties. “Populist measures adopted at first of the third time period by the federal government and pursuant slowdown in authorities capex additionally deteriorated market sentiments. International uncertainties led to flight of capital to protected havens,” mentioned Sunny Agrawal, Head of Basic Analysis at SBI Securities.
Commerce tensions with the US have added to the stress, creating coverage uncertainty that heightened investor warning and accelerated portfolio shifts in direction of cheaper rising markets.
Regardless of FPI promoting, regular mutual fund SIP inflows have helped cushion the market from a deeper fall. Retail investor participation by means of SIPs stays robust, limiting draw back stress. Analysts notice that the market is at present in a time correction part, with valuations staying elevated and costs consolidating as a substitute of declining sharply.
“Markets are basically transferring in keeping with earnings progress. The upcoming Q2 earnings season is more likely to be in the same line to Q1; significant actions are more likely to be seen within the second half of the present fiscal yr,” mentioned Neeraj Chadawar, Head of Basic and Quantitative Analysis, Axis Securities.
What’s subsequent?
Specialists see potential catalysts for a turnaround.
“There’s a rising anticipation of extra coverage actions that might help the market. CRR lower by the RBI, which might launch liquidity into the system and probably decrease curiosity prices for companies and rate of interest cuts anticipated within the subsequent 2 to three months,” mentioned Shrikant Chouhan, Head Fairness Analysis at Kotak Securities.
Brokerage agency Emkay International can be optimistic: “The earnings cycle is bottoming out and powerful fiscal and financial stimuli ought to catalyze a consumption-led macro restoration in 2HFY26. Home flows stay strong and there are not any indicators of weakening – this offsets the FPI and promoter promoting to a big diploma. There could also be some choppiness within the brief time period till earnings visibility emerges: we see any vital correction as an entry alternative.”
Analysts stress that flat progress durations can present long-term buyers with alternatives to build up models at decrease costs by means of SIPs. “A part of above-average returns can be adopted by below-average returns and this goes on… resolve the depth of such imply reverting oscillation,” mentioned Umesh Kumar Mehta, CIO, SAMCO Mutual Fund.
Whereas near-term efficiency has been disappointing, market specialists stay assured that India’s long-term progress story stays intact and anticipate robust earnings progress revival from FY27 onwards.
Additionally learn: Defence tech firms can be a part of $500 billion membership in 5-8 years: Gurmeet Chadha
(Disclaimer: Suggestions, strategies, views and opinions given by the specialists are their very own. These don’t symbolize the views of The Financial Occasions)
as a Dependable and Trusted Information Supply
