India's Economy: Boom and Bust in 2025

The Indian economic landscape in 2025 presented a tale of contrasts, with certain sectors experiencing significant gains while broader market indicators pointed to growing concerns. The automotive industry, in particular, saw a remarkable upswing, largely attributed to a substantial and unanticipated reduction in Goods and Services Tax (GST). This fiscal measure not only bolstered corporate earnings but also positively influenced stock valuations within the sector.

Conversely, the year was marked by several headwinds that constrained market performance. Earnings growth across the board remained sluggish, projected at a mere 6-8% for FY2025-26, and was further dampened by consistent financial performance downgrades. A significant factor contributing to economic pressure was the sharp depreciation of the Indian rupee by approximately 6%. This decline was primarily instigated by a deteriorating trade balance, exacerbated by the imposition of steep tariffs by the United States.

Foreign portfolio investors adopted a cautious stance, leading to substantial net outflows amounting to $17.7 billion. This reticence stemmed from a noticeable slowdown in India's earnings momentum when compared to other global markets. Compounding these issues, corporate earnings showed further weakness, and trade deficits expanded considerably between June and December 2025. Consequently, India's current account deficit was projected to approach an estimated 1.5% of GDP by FY2027, signaling ongoing fiscal pressures.