The Sensex has delivered a disappointing performance over the past year, slipping 0.7% and underperforming most global peers, despite favorable policy measures such as GST and income-tax relief, interest rate cuts, and strong domestic fund inflows.
Weak Earnings and FPI Outflows Drag Market
Analysts point to a combination of weak corporate earnings, persistent foreign portfolio investor (FPI) selling, and stretched valuations as the main reasons for the stagnation. From being one of the best-performing global markets a year ago, Indian equities have now dropped to the bottom of the performance table in what experts are calling a “stunning reversal of fortune.”
So far in 2025, FPIs have pulled out nearly ₹1.4 lakh crore, reallocating funds to developed markets and other emerging economies. Naveen Chouhan explained, “The persistent FII selling trend over the past year can largely be attributed to superior performance of developed markets and currency concerns. The Indian rupee has weakened relative to major global currencies.”
Corporate Earnings Disappoint
Nifty 50 earnings growth has remained in the mid-single digits, weighed down by delayed demand recovery and input cost pressures. Krishnan V R of Marcellus Investment Managers noted, “Valuation peaked around September-end last year, and with earnings growth moderating, it is no surprise indices have hardly delivered returns.”
Political and policy uncertainties have also dampened sentiment. Sunny Agrawal of SBI Securities said, “Populist measures at the start of the government’s third term and a slowdown in capex hurt confidence. Trade tensions with the US added to the uncertainty, driving capital to safer havens.”
SIP Inflows Cushion the Market
Despite heavy FPI selling, strong domestic mutual fund SIP inflows have prevented a sharper decline. Analysts suggest the market is in a “time correction” phase, consolidating at high valuations rather than witnessing a deep fall. Neeraj Chadawar of Axis Securities said Q2 earnings are likely to mirror Q1, with stronger activity expected only in the second half of FY26.
Outlook: Recovery Hinges on Policy and Earnings
Experts see potential catalysts for a turnaround in the coming months. Shrikant Chouhan of Kotak Securities pointed to possible liquidity-supportive measures: “There is growing anticipation of a CRR cut by the RBI and interest rate reductions in the next two to three months.”
Brokerage Emkay Global expects the earnings cycle to bottom out soon, with fiscal and monetary stimuli paving the way for a consumption-led recovery in 2HFY26. “Domestic flows remain robust and offset FPI selling to a large degree. Any significant correction should be seen as an entry opportunity,” the firm said.
Umesh Kumar Mehta of SAMCO Mutual Fund highlighted the cyclical nature of returns: “A phase of above-average returns will be followed by below-average returns and this goes on. Such flat phases provide opportunities for long-term investors to accumulate.”
While near-term prospects remain clouded, analysts maintain that India’s long-term growth story is intact, with strong earnings revival expected from FY27 onwards.
Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Capital Mirror.
