Dear Investors,
The market closed CY 2025 near all-time highs. Nifty and Sensex closed the year above the important sentiment levels of 26,000 and 85,000 respectively. Large caps outperformed midcap and small cap segments in 2025. This was a challenging year for small caps specially and the Nifty Small Cap 250 Index ended in the red. Foreign Institutional Investors (FII) were net sellers in CY 2025. Net FII sale in 2025 was to the tune of Rs 1.7 trillion. FII sell-off can be attributed to India's underperformance vis a vis other emerging market. Industry sectors like Metals, Automobiles, Banks, Financial Services, Telecom, Oil & Gas outperformed in CY 2025. Sectors like Realty, IT, Consumer Durables, Power and Healthcare underperformed in 2025.
CY 2025 was a very strong year for global equities. MSCI ACWI was up 22% in 2025. Emerging markets outperformed developed markets with MSCI EM rallying 34% in dollar terms. MSCI China was up 31%, and MSCI Brazil was up almost 50% in dollar terms. MSCI India, on the other hand, was up by just 3% in dollar terms. Among developed markets, MSCI Japan was up 25%, MSCI UK up by 35%, MSCI Germany up by 36%, MSCI France up by 28% in dollar terms. The S&P 500 underperformed emerging and major developed markets but still had a strong year rallying 16% in CY 2025. Artificial Intelligence was one of the most important themes in global equity market. The tech heavy NASDAQ 100 outperformed the S&P 500 by rallying 24% in CY 2025.
The RBI cut repo rates by 125 bps in CY 2025. Long-term bond yields declined in the first half of the year but have remained in tight range since then. The 10-year bond yield is around 6.6%. Short-term bond yields are also trading in a narrow range over the last few months. The 364 T-Bill yield is currently around 2.6%. Inflation has cooled down considerably and we have seen deflation (in WPI) over the last 2 months of the year. US interest rate cuts and low inflation can create conditions for RBI to cut rates further in 2026, but it also needs to balance priorities of INR depreciation and economic growth.
In the commodities market, precious metals had a dream run in CY 2025. Gold was up 75% in 2025, while silver's rally was even more spectacular, multiplying 2.7X in CY 2025 (rising 168% on a YOY basis). Precious metals are expected to extend their rally in 2026 with continuing central bank purchases, falling US interest rates, geo-political uncertainties and shifting geo-political dynamics. Crude prices slid below $60 per barrel mark. The Indian Rupee (INR) has been weakening against US Dollar (USD) due to rising trade deficit, FII outflows and uncertainty about Indo US trade deal. The INR is made a record low breaching the INR 90 per USD level. The INR depreciated by 5% in CY 2025.
India's strong GDP growth (7.8% in Q1 and 8.2% in Q2) was driven primarily by strong private consumption and manufacturing growth pushed. The Government's rationalization of the GST structure had a positive impact on boosting consumer sentiments and consumption demand in the festive season. India's current and trade account deficits narrowed in 2025. The Government has reiterated its commitment to meet the fiscal deficit target of 4.4%. With stable macros and revival in consumption growth, the long-term outlook for Indian equities remains very bright. Investors should remain disciplined and continue to invest through SIP.
Assuring you of our best services.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
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