India Stocks: Large-Cap Gains, Small-Cap Woes

In 2025, India's large-cap stocks delivered a notable 10% return, while small-cap equities experienced considerable underperformance. This divergence was attributed to a slowdown in domestic earnings growth, driven by moderated demand and elevated valuations. The year commenced with a cautiously optimistic outlook, influenced by domestic economic strength and anticipated interest rate reductions.

However, this sentiment shifted as the global "tariff war" intensified, impacting India's trade position. The expansion of global risks, including the Israel-Hamas conflict, further unsettled markets. This geopolitical instability led to gold and silver emerging as top-performing assets.

Foreign institutional investors (FIIs) adopted a 'sell India and buy China' strategy, exacerbating the impact on the Indian market. This period was characterized by declining corporate earnings due to subdued demand and a lack of significant government or private capital expenditure.