Major Indian indices including the Sensex, Nifty50, and BSE 500 gave negative returns from October 2024 to September 2025
Experts attribute the lacklustre performance to factors, including rich valuations, disappointing corporate performance, and increased investor interest in China and the U.S. due to more attractive valuations and Trump-era tariffs
Despite the stock market's performance, the Indian economy remained stable. The GDP recorded robust growth for four consecutive quarters, and high-frequency indicators were largely positive
The market saw a consistent outflow of foreign capital, which was largely counteracted by strong and consistent inflows from Domestic Institutional Investors (DIIs) and retail investors, who showed a shift in behavior by remaining invested during the market turmoil
India’s stock markets have given lacklustre returns since October 2024 to September 2025. Benchmark Indices BSE Sensex and Nifty50 had hit all-time-highs at 85,836.12 and 26,216.05, respectively, on September 27, 2024.
Following that peak, BSE Sensex and Nifty50 have given negative returns of -1.62% and -1.60%, between October 2024 to September 2025. In the broader markets, the BSE 500 has returned -1.55%, while BSE MidCap and BSE SmallCap have returned -1.59% and -1.92%, respectively, during the same period.
Talk to experts and they ascribe a number of reasons for the subdued performance. They cite rich valuations, faltering corporate performance, China and the US becoming a relatively attractive investment destinations, apart from the volatility introduced by tariffs as reasons.
“One reason is rich valuation. Second reason if you take the Sensex and Nifty basket had single digit growth in the last one year. It started before September 2024 and it continued aggressively September onwards… Added to that, China became relatively attractive in terms of overall market valuation. Then foreigners across the world moved to America. And after March, we had Trump’s tariff; so that also accelerated the pain,” says G. Chokkalingam, Founder of Equinomics Research.
Meanwhile, independent market analyst Ambareesh Baliga cites corporate performance as the primary reason. “One of the main reasons is corporate performance. That's not kept pace. Quarter after quarter, we've seen some decent amount of disappointments. And the other thing is, if you see post-COVID, it was more or less one way up for the markets… So at some point of time, it had to correct and that's the correction which we saw since September last year,” he explains.
Economy on a Song
While the markets have remained subdued, the Indian economy has been stable during the past 12 months, despite external challenges, analysts say.
Sample this: The Indian economy grew 5.4% during the July-September 2024 quarter (Q2 FY25), followed by 6.20% in October-December 2024 (Q3 FY25), 7.40% in January-March 2025 (Q4 FY25), and April-June 2025 (Q1 FY26) periods.
High-frequency indicators have largely held stable during this period. For instance, Manufacturing PMI reading has moved between the range of 56.4 (Dec 2024) and 58.4 (June 2025); Services PMI has moved between 58.4 (October 2024) to 62.4 (June 2025). While IIP has recorded moderated between 5.20% (November 2024) to 2.00% (June 2025); it dipped to 1.20% in May 2025 reading.
Elsewhere, headline retail inflation has moderated from a high of 5.70% to 2.10% in June 2025, while GST collections have also been buoyant during this period.
“The domestic macroeconomic factors remain very strong, whether you take monsoon performance, or agricultural GDP growth… The PLI schemes are really helping. Oil price is down 18-20% from the peak. Inflation rate has came down to a very low level. So interest rate cut started happening and there is a chance that more cut will happen. The domestic factors are becoming strong,” says Chokkalingam.
However, Baliga takes a contrarian view on the macroeconomic figures.
“GST, I think one of the most important reasons is compliance. There are two things which contribute to GST. One is the natural increase in business. And the second one is compliance. I think the compliance weightage is more than natural increase… If you look at manufacturing, IIP data hasn't been too great. That's a clear reflection on how the corporate performance would be,” he explains.
In terms of markets, meanwhile, the Nifty50 has climbed 4.85% since start of the financial year, from April 2025, while the BSE Sensex has gained 4.2%. Similarly, the BSE 500 has risen 4.2%, the BSE SmallCap has climbed 4.7% and the BSE MidCap has climbed 4.4%.
Baliga says this current upside is due to demand and supply. “Despite going by corporate performance, the markets look a bit expensive at these levels. But there is liquidity driven momentum. You have money coming in, supply is less, so the markets are going up,” he adds.
Foreign Capital Plays Truant
In contrast, the Indian markets have seen a consistent outflow of foreign capital during seven of the 12 months during this period, with September still underway. Starting from October 2024, which recorded a total outflow of ₹94,017 crore, foreign institutional investors have cumulatively pulled out over ₹3.31 lakh crore from Indian equities in seven out of the past 12 months, while investing ₹68,856 crore during the remaining five. They have sold equities worth ₹2,100 crore, so far in September 2025.
Discussing the reasons behind foreign investors pulling out from the Indian markets, experts say the tariff war is a major overhand. “There is a worry in terms of tariff war. Overall goods export is only 11% of GDP. Out of that 20% is to America. So 2% of GDP, we can manage; our GDP may fall by 30bps or so,” Chokkalingam says.
Meanwhile, the Indian markets have seen net inflows of ₹3.43 lakh crore from domestic institutional investors, coupled with ₹2.93 lakh crore in terms of SIP inflows over the period, excluding September. Explaining this contrast, Baliga says that retail investors have wised up during this period of market turmoil.
“Retail investors were more of the herd mentality. When the markets were going up, they would get in. When the markets came down, they would panic. There seems to be some change of investor behaviour there. I don't know whether this is temporary or whether it's long term,” he notes.
Ignore at your Own Peril
India’s economy is on a strong footing, say analysts. They attribute it to the recent measures introduced by the government, along with other macroeconomic factors. Chokkaligam says a stable GDP growth, moderating inflation, the possibility of further rate cuts, and monsoon and its impact on agri output, combined with the PLI scheme, are positives for the markets.
He further points to GST rate cuts, and the income tax cut announced earlier to boost aggregate demand.
However, despite the upbeat view on the economy, experts sound a word of caution regarding risks facing the Indian markets.
“It is only corporate performance. Tariffs and all are already discounted. If you talk about specific sectors, they could get affected if there is no U-turn [on tariffs]. For example, textiles. But in case there is no understanding on trade, then the market may not correct too much, but those specific sectors will just remain subdued. That is in terms of risk from the horizon,” says Baliga.
He adds: “As investors, we have a choice [to invest]. Businessmen don't have a choice. If you're a promoter of a textile company, you can't do anything. But from a FII perspective, sooner or later, they'll have to come back. Because if you're talking about slightly longer-term, how can you ignore an economy which continues to grow? If you ignore, you'll ignore at your own peril. That applies to all FIIs who want to remain relevant”.
