Sensex and Nifty closed 2025 as the worst performing major equity indices globally in dollar terms, as record foreign investor outflows, rupee depreciation, and valuation resets erased local currency gains and dragged India to the bottom of global market rankings.
India’s benchmark indices may have ended the year with modest gains in rupee terms, but once adjusted for currency movement, the picture changed sharply. The main keyword Sensex and Nifty worst performers globally defines the year end narrative investors are now grappling with as global funds reassess India exposure.
Dollar Returns Expose India’s Market Underperformance
In local currency, the Sensex and Nifty delivered low single digit returns in 2025, extending India’s long run of positive calendar year outcomes. However, the rupee weakened meaningfully against the US dollar over the year, converting marginal domestic gains into negative dollar returns for foreign investors.
On a dollar adjusted basis, Indian equities underperformed peers across Asia, Europe, and the United States. Markets like Japan, the US, and select European indices posted positive dollar returns, while India slipped to the bottom of the global performance table. For overseas funds, India was the weakest large market bet of 2025.
Record Foreign Outflows Drive Market Pressure
The biggest drag came from sustained foreign institutional investor selling. Foreign outflows from Indian equities and debt hit record levels in 2025 as global funds rotated capital toward developed markets offering higher risk adjusted returns and stronger currency stability.
Rising US bond yields, tighter global financial conditions, and better earnings visibility in American and European equities reduced the relative appeal of India. Foreign investors also cut exposure due to valuation concerns, especially in midcap and smallcap stocks that had surged sharply in previous years.
The selling pressure was persistent rather than episodic, keeping Indian indices range bound for most of the year despite domestic inflows from mutual funds and retail investors.
Rupee Weakness Amplifies Losses in Dollar Terms
Currency movement played a decisive role in pushing Sensex and Nifty to the bottom of global rankings. The rupee depreciated steadily through 2025, impacted by a widening trade deficit, volatile crude oil prices, and strong dollar demand globally.
Even modest equity gains were wiped out once translated into dollars. For global investors who benchmark returns in dollar terms, currency erosion made India one of the least rewarding equity markets of the year despite economic growth remaining among the strongest globally.
This divergence between economic growth and market returns became one of the defining contradictions of 2025.
Valuations and Earnings Reality Check
Another factor behind underperformance was a valuation reset. Indian equities entered 2025 trading at a premium to most global peers. While earnings growth remained positive, it did not accelerate fast enough to justify earlier multiples, particularly in consumption, new age technology, and smallcap segments.
Corporate earnings growth stayed in the low to mid teens, solid but not exceptional. As global risk appetite shifted, investors demanded stronger earnings delivery and lower valuations, forcing repricing across sectors.
Banking and infrastructure stocks held up better, but heavyweights in IT services and consumer discretionary struggled amid slower global demand.
Why Domestic Investors Did Not Feel the Pain Fully
Despite poor dollar performance, domestic investors did not experience a market collapse. Systematic investment plan inflows remained steady through the year, providing a structural bid to equities. Household participation helped absorb foreign selling and limited downside volatility.
For local investors earning and spending in rupees, currency depreciation is largely invisible. This created a disconnect between domestic market sentiment and global investor perception, with Indian retail investors seeing stability while foreign funds recorded losses.
What This Means Heading Into 2026
Ending 2025 as the worst performer globally in dollar terms does not automatically imply long term weakness. However, it raises questions about valuation discipline, currency risk management, and India’s positioning in global portfolios.
Sustained recovery in foreign flows will depend on a combination of currency stability, stronger earnings momentum, and relative attractiveness versus global peers. Without these, India risks remaining a domestic driven market with limited global participation.
Takeaways
Sensex and Nifty ranked lowest globally in 2025 on dollar adjusted returns
Record foreign investor outflows were a major driver of underperformance
Rupee depreciation turned modest local gains into dollar losses
Valuation resets exposed the gap between growth expectations and earnings
FAQs
Why did Indian markets perform poorly in dollar terms?
Rupee depreciation combined with weak foreign inflows converted small rupee gains into negative dollar returns.
Did Indian markets actually fall in 2025?
In rupee terms, benchmarks ended near flat to modestly positive, but dollar adjusted returns were negative.
Are foreign investors likely to return in 2026?
Flows will depend on global rates, currency stability, and whether Indian earnings growth improves relative to peers.
Should domestic investors be concerned about global rankings?
Global rankings matter for capital flows, but long term domestic investors should focus on earnings quality and valuation.
