The equity market in 2025 witnessed a highly selective rally, with gains confined to a narrow set of stocks, while the broader market remained under pressure. Nearly 90 percent of the listed universe continued to trade well below their respective 52-week highs, despite significant government support through income tax and GST rate cuts and the presence of strong domestic inflows.
The extent of the underperformance across the market was stark. Out of a total listed universe of 2,667 stocks, nearly 90 percent of stocks were down more than 20 percent from their 52-week highs. Around 413 were trading between 10-20 percent below their 52-week highs. And a much larger cohort of nearly 1,532 companies was quoting between 20-50 percent below their one-year peaks.
The correction was even sharper in several counters, with about 397 stocks trading between 50-75 percent below their 12-month highs, while close to 30 companies were positioned nearly 75 percent below their respective 52-week highs. Just about 10 per cent of stocks, rallied back from the lows for the year and are in the vicinity of their 52-week highs.
Through the year, the broader market remained constrained by a combination of elevated valuations, earnings downgrades and weak earnings growth expectations for FY26. Investor sentiment was further impacted by subdued participation from foreign investors, who shifted towards more attractive opportunities in other markets. The domestic market’s limited exposure to the artificial intelligence theme, which supported several global markets during the second half of calendar year 2025, also weighed on overall performance.
Ambreesh Baliga, an independent analyst, said the decline in these stocks was not necessarily driven by widespread earnings disappointment, as recent results were broadly in line with or better than expectations. He noted that the pressure largely reflected the absence of fresh liquidity from retail investors, HNIs and PMS players, with buying interest concentrated in the top 300 stocks. With foreign investors pulling out and mutual funds focusing primarily on large and liquid names, stocks beyond this universe continued to face sustained pressure.
At the index level, large-cap stocks delivered relatively stronger returns. The benchmark Sensex and Nifty gained nearly 10 percent each so far, showing resilience amid broader market weakness. In contrast, the BSE mid-cap index posted a modest return of about 1 percent, while the BSE small-cap index declined by nearly 8 percent, underscoring the stress in the wider market.
Saurabh Jain, Head of Fundamental Research at SMC Global Securities, said the current phase does not indicate a market collapse but reflects a period in which quality businesses appear closer to bottoming out, a pattern commonly seen in market cycles.
Following the sharp correction across a large number of stocks, analysts said the froth in mid- and small-cap stocks appears to have largely corrected for the time being. Experts, however, cautioned investors against rushing into stocks solely on the basis of price declines, noting that several corrections are linked to underlying business or financial challenges. They advised a cautious and phased approach, with a focus on quality companies, patience and careful stock selection.
Kotak Institutional Equities in its latest note predicted a somewhat better CY2026, supported by a strong recovery in overall market earnings. They said confidence has improved around a broad-based earnings rebound across most sectors, although downside risks to margins persist in automobiles and consumer staples. The outlook is also underpinned by an expected improvement in domestic consumption, driven by GST and income tax rate cuts and lower interest rates.
In addition, a potentially more favourable macroeconomic environment is anticipated following the likely conclusion of the India-US trade deal after months of prolonged negotiations, which could aid a recovery in the INR. The currency has come under pressure after a sudden and sharp deterioration in India’s trade balance, despite its otherwise reasonable fundamentals, Kotak added.
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