- The BSE Sensex closed the year at 85,221 and the Nifty 50 at 26,130, ending 2025 on a positive note with a monthly gain of approximately 0.64% and 0.74% respectively. Sentiment was bolstered by the RBI’s 25 bps rate cut, strong Q2 GDP growth, and the announcement that India has officially surpassed Japan to become the world’s fourth-largest economy.
- Market momentum was characterized by selective buying and sector rotation throughout December. While the indices maintained record levels, investors remained watchful of US-India trade negotiations and potential tariff uncertainties, leading to a consolidation phase after the initial mid-month volatility.
- Inflation data remained highly favorable, with CPI moderating to 0.71% and WPI remaining in the deflationary zone at –0.32%. This “goldilocks” scenario of low inflation provided the necessary room for the RBI to cut the repo rate to 5.25%, further supporting corporate margins and domestic consumption.
- Global macro conditions remained easing yet cautious, as the US Federal Reserve delivered its third consecutive rate cut of 25 bps, bringing the policy range to 3.50%–3.75%. Brent crude oil prices cooled further to an average of $61–$63 per barrel, the lowest since early 2021, amid expectations of a potential supply glut and ongoing peace talks.
- Foreign Portfolio Investors (FPIs) accelerated their exit, with net equity outflows deepening to approximately Rs. 22,611 crores during December. This was driven by a combination of global risk aversion, a stronger US dollar (reaching ~Rs. 90), and a tactical shift as FIIs reallocated capital from secondary markets to primary IPO markets.
- The Nifty’s forward P/E remains steady at approximately 20x FY27E earnings, which is comfortably aligned with its long-term average. A strong 12–13% earnings CAGR is still projected for the FY25–27 period, maintaining a constructive outlook as India heads into the 2026 calendar year.
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
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