OPINION | Indian equity markets in a volatile 2025 displayed resilience

A year marked by resilience

2025 was a testament to the enduring resilience of Indian equity markets. Despite encountering periods of heightened volatility and a measured start after the remarkable gains of 2024, our markets demonstrated their ability to adapt and recover.

Global headwinds—including evolving US trade policies and ongoing geopolitical tensions—introduced intermittent uncertainty, yet their impact was effectively managed and contained.

Renewed momentum in the second half

What stands out most is the renewed momentum we witnessed in the latter part of the year. This resurgence propelled both the Sensex and Nifty towards new lifetime highs, reaffirming the robust fundamentals and long-term potential of the India growth story. As we look ahead, I remain confident that our market’s underlying strength and adaptability will continue to drive sustainable value for all stakeholders. 

Economic developments of 2025 that helped

# Robust Growth Momentum: India’s economy continues to outperform expectations, with real GDP growth reaching 7.8% and 8.2% year-on-year in Q1 and Q2 FY26, respectively.

# Supportive Monetary Policy: The RBI’s proactive stance—easing liquidity and cutting the repo rate by 125 basis points—has started to stimulate credit growth. With inflation remaining benign, there is potential for further rate reductions.

# Tax and Regulatory Reforms: The government’s move to simplify GST rates from five to three slabs marks a significant reform. Lower GST rates across various products and services, along with reduced income tax rates in the Union Budget 2025, are expected to boost disposable incomes, especially for the middle class, with positive effects likely to be seen in the latter half of the fiscal year and beyond.

# Rural Demand Strengthening: A favourable monsoon and low inflation have lifted rural consumer confidence, setting the stage for stronger demand in the coming quarters.

A snapshot of market performance

Stability in Large Caps, Pressure in Small Caps: Market performance in 2025 showed a clear divergence across segments. While key benchmark indices like the Nifty 50 TRI (+11%) and BSE Sensex TRI (+10%) delivered steady returns (January 1 to December 15), and the broader BSE 200 TRI gained nearly 9%, mid-cap stocks saw moderate growth (+5% on the Nifty Midcap 150 TRI).

In contrast, small-cap stocks corrected sharply, with the BSE Small Cap TRI falling by about 7%.

Despite headline indices trading near all-time highs, market breadth was weak—only 14% of Nifty 500 stocks were close to their 52-week highs, and over half were down 20% or more from their peaks. This indicates that index gains were driven by a narrow group of stocks, underscoring the importance of selective, fundamentally driven investment strategies (Bloomberg. Data period Jan 1 to Dec 22, 2025 closing period has been considered.)

Sectoral Trends: Metals shine, Realty cracks

2025 has seen significant divergence in sectoral performance. The BSE Metal index delivered strong returns of over 23%, while the BSE Auto TRI gained around 20%, supported by demand recovery and improved operating efficiencies. Banking and financial services also performed well, posting gains of about 16%, driven by healthy balance sheets and steady credit growth.

However, some sectors faced challenges during the year. Information Technology sector declined by around 12%. Consumer Durables and Real Estate also ended the year in negative territory, with real estate declining by over 16 (Data period Jan 1 to Dec 15, 2025).

FIIs and DIIs – DIIs shine as Indian savings steps in

In 2025, the Indian market saw a clear divide between foreign and domestic investors. Foreign Institutional Investors (FIIs) withdrew funds in 7 out of 11 months, resulting in net outflows of Rs 1,43,675 crore.

In contrast, Domestic Institutional Investors (DIIs), especially mutual funds, consistently injected capital every month, with net inflows totaling Rs 6,85,421 crore (AMFI Data as on Jan 1 to Nov 28, 2025). This resilience was largely supported by disciplined retail investors through systematic investment plans (SIPs), which played a key role in maintaining market stability during volatile periods

Mutual fund asset base grows - Hybrid mutual funds lead the rise

The mutual fund industry demonstrated robust growth across all major categories, underpinned by strong retail investor participation and consistent inflows, especially through SIPs.

• Strong Growth in AUM: The domestic mutual fund industry’s assets under management (AUM) surged by 20.25%, rising from Rs 66.99 lakh crore in January to approximately Rs 80.55 lakh crore in November 2025.
• Retail Investor Confidence: Retail participation remains a key driver, supported by increased digital adoption, affordable SIPs, and greater financial awareness.
• Hybrid Funds: Assets in hybrid funds grew by 24.28% to Rs 10.88 lakh crore, with a net inflow of Rs 145,886 crore, mainly due to gains in dynamic asset allocation/balanced advantage funds.
• Open-ended Equity Funds: These funds saw a 21.01% rise in assets to Rs 35.65 lakh crore, with net inflows of Rs 322,098 crore.
• Open-ended Debt Funds: Assets increased by 13.43% to Rs 19.35 lakh crore, with net inflows of Rs 229,221 crore.
• SIP Collections: Systematic investment plan (SIP) collections continued their upward trend, reaching Rs 303,978 crore by November 2025 (AMFI Data as on Jan 1 to Nov 28, 2025).

Gold and silver deliver superb returns 

Gold and silver broke records in 2025. Silver reached record levels in 2025 posting outstanding returns, its best returns in decades led by strong industrial demands. Gold prices also climbed strongly in 2025 gaining around 70% due to safe haven demand amid rising global uncertainty.

Road ahead 

India’s growth trajectory remains robust and forward-looking. The domestic macroeconomic environment continues to provide a solid foundation, underpinned by moderating inflation, the prospect of monetary easing, strong government-led capital expenditure, ample liquidity, and ongoing structural reforms.

While near-term global uncertainties may result in range-bound markets, India’s investment cycle is well-positioned for further acceleration over the medium term, fueled by significant advancements in infrastructure, manufacturing, renewable energy, and supply-chain localisation.

We maintain a constructive outlook on equities over the long term, viewing periods of market volatility as strategic opportunities to build high-quality portfolios. On the fixed income side, favourable inflation dynamics and a well-managed current account deficit create a supportive backdrop, further reinforced by stable price levels and improving external balances.

Looking ahead to 2026, we believe that a well-diversified allocation across equities, fixed income, and commodities will be instrumental in navigating market volatility and capturing opportunities amid an evolving geopolitical landscape.

(Kailash Kulkarni is CEO, HSBC MF.)

Views are personal and do not represent the stand of this organisation.