Why Indian stocks are underperforming against their Asian peers
What's the story
Indian equities are on track to witness their biggest underperformance against other Asian markets in nearly three decades. The trend is largely attributed to a weakening Indian rupee and foreign capital outflows. After a recovery that started in September, the momentum has slowed down as global fund managers reduce their investments in India.
Capital flight
Foreign funds withdraw $1.7B in December
In December alone, foreign funds withdrew a whopping $1.7 billion from Indian equities. This has pushed the total annual outflows to a record high of $17.9 billion. The withdrawals have been exacerbated by the rupee's decline, which has diminished returns for overseas investors and further fueled capital flight from Indian stocks.
Trade impact
US trade deal impasse and rupee's record lows
The stalled trade deal with the US, which has levied the highest tariffs in Asia on India, has also contributed to the rupee hitting a series of record lows in recent months. The year 2025 has seen Indian stocks fall out of favor with foreign investors due to high valuations, slowing earnings growth, and a lack of credible AI-linked names.
Market performance
Nifty 50 index on track for annual underperformance
The Nifty 50 Index is headed toward its biggest annual underperformance against other Asian markets since the late 1990s. Despite a marginal rise of 0.6% today, it remains down by 0.8% in December, marking its first monthly decline since August. "2025 wasn't an easy year for Indian capital markets," Axis Securities CEO Pranav Haridasan said to Bloomberg.
Market resilience
Indian stock market set for 10th consecutive year of gains
Despite the challenges, India's stock market is poised to post its 10th consecutive year of gains. The trend is backed by strong local institutional demand, which has invested around $81 billion into equities in 2025. This has helped sustain returns of around 10% this year. Analysts from Nomura Holdings Inc and Citigroup Inc expect Indian equities to continue their upward trajectory in 2026, if corporate earnings improve and policy measures supporting domestic demand take effect.