Indian stocks have been on a losing streak since the release of the Hindenburg report on a major corporate entity in January 2024. Over the past year, the market has struggled, requiring significant reforms to rebound. While international capital continues to flow into India, much of it is for short durations rather than long-term investments. The consistent flight of trillions of dollars by foreign portfolio investors (FPIs) has become a troubling trend, with long-term investors lacking confidence.
Since October 2024, India’s market capitalization has dropped by nearly $1 trillion, while China’s has risen by $2 trillion, indicating a strategic shift in foreign institutional investor (FII) flows. If India aspires to become a global economic powerhouse, it must rethink its economic policies. Occasional rises in BSE and
NIFTY indices should not be mistaken for market stability or economic strength.
The Indian market saw a sharp correction from its September 2024 peak due to high valuations, concerns over slowing growth, weaker earnings, and global uncertainties, including fears of a tariff war following U.S. President Donald Trump’s election. On February 28, 2025, a market bloodbath saw key indices crashing by 1.9 percent, wiping out 18 percent of investor wealth since September 2024. The Sensex plunged 16 percent (12,256 points), while the Nifty tumbled 18 percent (3,991 points) from their record highs on September 26, 2024. Broader markets suffered even steeper losses, with the BSE MidCap and SmallCap indices dropping over 20 percent.. These losses compounded after the Lok Sabha election results in June.
The Nifty 50 slumped 1.2 percent to below 22,300, marking its third straight monthly decline amid concerns over a global trade war and persistent foreign fund outflows. The situation resembles the market crash of June 2015– 2016, when the Sensex fell 1,624 points (5.94%) on August 24, 2015, erasing nearly Rs 7 lakh
crore from the market. During that period, the Sensex lost over 26 percent between April 2015 and February 2016.
Currently, FPIs continue their selling spree, pulling out an alarming Rs 2.13 lakh crore from the domestic market since October 2024. This outflow has placed additional strain on an already struggling market.
Global market instability, driven by protectionist policies, further exacerbates India’s challenges. The downturn in Asian stocks is also attributed to President Trump’s aggressive economic stance. Investor sentiment was shaken when Trump confirmed 25 percent tariffs on European automobiles and new levies on Mexico and Canada, effective March 4, 2025. A widespread selloff on Wall Street, led by tech stock
declines, also impacted global markets, including India.
Domestic factors have also played a significant role in India’s market woes. The country’s core sectors have struggled, manufacturing has been operating below optimal levels, and even agriculture has experienced setbacks in production. This further dented investor confidence.
Regulatory oversight remains a concern. The international investment community expects regulators like SEBI to function objectively. Investors were shaken by the role of SEBI’s exiting chief Madhabi Buch. However, with the appointment of new SEBI Chairman Tuhin Kant Pandey, who has a finance and administrative background, expectations for greater transparency and professional governance have
increased.
Economic growth in Asia’s third largest economy has slowed sharply this fiscal year. High inflation and stagnant incomes have constrained household spending, leading to weaker corporate earnings. Since October 2024, FPIs have withdrawn nearly $25 billion, turning India’s once top-performing stock index into
one of the region’s worst. The rupee’s persistent depreciation, hitting record lows, making India’s expensive stock market even less attractive.
Unless corporate earnings show significant improvement or valuations undergo meaningful corrections, a broader market recovery remains elusive. The government appears to have overestimated stock market
performance in its budget projections. For the 2025–26 fiscal year, the Centre expects securities transaction tax (STT) collections to reach Rs 78,000 crore—an ambitious target compared to Rs 37,000 crore in actual collections for 2024–25 and ?55,000 crore in revised estimates. This projection reflects a 40 percent increase over the revised figures and a staggering 63 percent growth over the Rs 33,778 crore collected in 2023–24.
Despite ongoing challenges, some experts argue that the Indian stock market has deepened significantly
in recent years. They contend that indices like Nifty and Sensex no longer fully represent the broader market. While large-cap valuations have moderated, mid and small-cap valuations remain elevated. Earnings growth has slowed, contributing to current volatility.
However, the scenario is not entirely bleak. The International Monetary Fund (IMF) has been advocating for structural reforms to ensure sustained economic growth in India. Additionally, India is strengthening economic ties with the European Union (EU), as evidenced by ongoing discussions with EU President Ursula von der Leyen on defence, security strategy, and free trade. Trade between India and the EU has now
reached $135 billion, surpassing India’s $120 billion trade with the U.S. Indian companies are making strategic global acquisitions, particularly in steel and other industries. India’s GDP growth rate remains resilient at around 6.4 percent in 2025, despite market turbulence.
India is also expanding its trade footprint in Southeast Asia, Australia, and other emerging markets. The government’s efforts to stimulate domestic demand through wage revisions could further support economic recovery. Plans to revise salaries for 48.67 lakh central government employees and 67.95 lakh
pensioners, along with 20 million state and local government employees, are expected to spur consumption.
Regulatory reforms have also been gaining traction. In 2024, SEBI introduced several key measures,
including cooling down the derivatives segment, enhancing transparency in small and midsized enterprise (SME) listings, and deepening the fund management ecosystem. Notably, SEBI implemented a same-day
settlement cycle, a groundbreaking move in global markets.
Nonetheless, corporate earnings remain a concern. Nifty 50 companies posted just 5 percent earnings growth in the last quarter—the third consecutive quarter of single-digit gains after two years of strong double-digit expansion. While corporate earnings in 2025 may see some improvement, it is unlikely to be
substantial enough to attract significant international investment. Inflationary pressures and rising unemployment continue to pose risks, particularly for export-driven sectors such as IT, pharmaceuticals, and specialty chemicals.
While the Indian stock market is facing significant headwinds, there are pockets of resilience. Structural reforms, policy shifts, and government initiatives aimed at boosting domestic demand could help stabilize the market. However, restoring investor confidence— both domestic and international— will require sustained efforts to address economic vulnerabilities, improve corporate earnings, and implement transparent regulatory practices. India then can hope to position itself as an attractive longterm investment destination.
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