The first half of FY 2025 was marked by geopolitical tensions, the cross-border conflict, and trade-related turbulence. However, the global markets took all the developments in their stride and recorded sharp rallies of over seven percent, surprising investors.
The Nifty 50 rose by about 7.5 percent in the first six months, in line with global peers, while some markets like Germany, Hong Kong, and Brazil saw strong double-digit returns.
Why did global markets rally?
South Korea's Kospi and Germany's DAX have led the global indices in 2025 so far, rallying over 35 percent (in dollar terms) in six months. A large factor supporting the rally is the rapid depreciation of the US dollar.
The dollar has tumbled around 10 percent, with experts pointing towards economic and political instability. Rapidly shifting policies on trade, local governance, and severe unrest have caused investors to offload their dollar-based holdings, causing the currency to post a sharp slide.
Additionally, a large portion of the global rally was supported by growing expectations that central banks would begin easing policy rates. The US Federal Reserve, while cautious, has sent signals of a potential rate cut cycle ahead, as inflation showed signs of moderating. The S&P 500 posted a gain of 5.5 percent, supported by tech-led strength and optimism over easing inflationary pressure.
Markets often discount known risks, and it appears that concerns like US tariff announcements and Middle East tensions are already being priced in, noted Pranay Aggarwal, Director and CEO, Stoxkart.
Further, the weakening US dollar, primarily attributed to escalating concerns over America's mounting debt burden and fiscal sustainability, is creating additional incentives for US-based investors to explore offshore opportunities, said Devarsh Vakil, Head of Prime Research, HDFC Securities.
What drove the rally in Indian markets?
Manish Sonathalia, CIO of Emkay Investment Managers, stated that even Dalal Street is doing better than expected. While the markets are overshooting fundamentals on account of positive sentiments around the globe, along with the dollar depreciation, the India-specific macro reasons are very solid.
Further, the results season for the March quarter were far better than expected, he said. The liquidity-boosting measures from the Reserve Bank of India (RBI) and the front-loaded interest rate cuts have helped the markets gather decent gains in the first half of this year.
Global uncertainties and resulting volatility have been priced into D-Street’s current valuations. “Markets are balancing these risks with a strong domestic growth and policy support, leading to cautious optimism. Elevated valuations reflect a premium for these risks, but investors remain focused on earnings growth and macroeconomic stability,” said Sushant Bhansali, CEO, Ambit Asset Management.
Going ahead, the key risk factors to monitor include the evolution of trade policy impacts, trends in consumer confidence, and the Federal Reserve's ability to strike a balance between its dual mandates, noted Vakil. Success in managing these risks will largely determine whether the current economic deceleration represents a healthy adjustment or a more concerning structural shift.
While India has shown resilience, experts agree that a complete decoupling from global markets is unlikely. Global capital flows, interest rate expectations, and trade policy shifts still influence Indian equities. The domestic growth story, strong policy support, and sustained retail participation provide a cushion during global shocks.
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