Despite global headwinds, steady growth, FPI inflows, and sector resilience keep markets on track

In the face of global economic turbulence, the Indian stock market has displayed resilience in 2025. Major equity indices have withstood inflationary pressures, foreign capital volatility, and geopolitical uncertainties. Despite several headwinds, steady investor confidence, a stable macroeconomic framework, and strong corporate performance have supported the Indian market’s momentum.

Robust Market Recovery Amid Global Uncertainty

The Nifty 50 and the BSE Sensex, India’s benchmark indices, have showcased solid recovery in the first quarter of 2025. The Nifty 50 regained lost ground and erased its year-to-date losses following a six-day rally. It recently climbed over 1.3% to close near 23,658, while the Sensex rose 1.4%, crossing 77,980 points. Despite being around 10% below record highs seen in late 2024, the indices remain stable amid an uncertain global economic backdrop.

Several sectors contributed to this rally. Information technology and financial services led the gains, driven by foreign buying and renewed domestic interest. Mid-cap and small-cap stocks also participated, indicating broad-based confidence in equities. As inflation data softened and industrial output picked up pace, domestic investors increased their exposure to equities, reflecting optimism in India’s growth outlook.

Foreign Investment Returns to Indian Markets

Foreign portfolio investors (FPIs) returned as net buyers after a period of consistent selling. In March 2025 alone, FPIs infused nearly $3 billion into Indian equities. This renewed flow came after stronger-than-expected macro data and reduced fears of aggressive interest rate hikes in the United States.

Financial stocks, which dominate the index weightage, benefited most from this capital inflow. Banking majors like HDFC Bank, ICICI Bank, and Kotak Mahindra Bank witnessed improved volumes and price momentum. Technology stocks also attracted buying interest, supported by improved global risk appetite.

Macroeconomic Stability Supporting Investor Sentiment

India’s macroeconomic fundamentals have supported the equity market’s stability. The economy is expected to grow between 6.3% and 6.8% in FY2025–26. This growth, supported by strong domestic demand and increased infrastructure spending, positions India as one of the fastest-growing major economies.

Retail inflation has moderated in recent months, allowing the Reserve Bank of India (RBI) to maintain a balanced stance on monetary policy. Although global central banks remain cautious, the RBI has refrained from tightening, supporting liquidity in the system and encouraging investor activity.

On the trade front, India has taken bold steps to stimulate the economy. The recent decision to lift restrictions on rice exports aims to double agricultural exports by 2030. This move supports the rural economy, which employs a large portion of the population, and strengthens India’s position as a global food supplier.

Sector-Wise Performance and Resilience

Different sectors have performed unevenly, reflecting the nuances of India’s economic landscape.

Technology and Financials Lead the Charge

The IT sector saw a 2% surge in stock prices across major players like TCS, Infosys, HCL Technologies, and Wipro. Investors responded positively to the Federal Reserve’s softened stance and projections for a rate cut later in the year. The technology sector, with significant exposure to the U.S. market, benefits directly from such developments.

The financial services sector, particularly private banks, attracted significant buying interest from both domestic and foreign investors. A healthy credit growth cycle, robust asset quality, and stable interest margins supported bullish outlooks.

Manufacturing Faces Policy Challenges

The $23 billion Production-Linked Incentive (PLI) scheme launched in 2020 aimed to boost India’s manufacturing competitiveness. However, by early 2025, the scheme faced criticism for underperformance. Only 37% of the intended production targets were achieved, and just over $1.7 billion of the allocated funds had been disbursed. Several companies, including global players like Foxconn and domestic giants like Reliance, struggled to meet the scheme’s criteria due to delayed subsidies and bureaucratic inefficiencies.

As a result, India’s manufacturing sector’s contribution to GDP slipped from 15.4% to 14.3%. The government is now evaluating alternatives to the PLI framework, such as reimbursing capital investments directly, to incentivize domestic production and job creation more effectively.

Exports and Trade Dynamics Shift

With global demand facing headwinds, Indian exporters encountered mixed fortunes. While IT and pharmaceutical exports remained stable, sectors like textiles, chemicals, and machinery faced lower international orders due to slowing global growth.

To counter these challenges, the Indian government prioritized bilateral trade agreements and export diversification strategies. Additionally, rice exports resumed in a bid to reclaim lost market share and support farmers. Lower rice prices also made Indian grain competitive in African and East Asian markets, strengthening trade relationships.

Investor Confidence Amid Global Headwinds

Several global risks loom over markets, but investor sentiment toward Indian equities remains positive.

Global Slowdown Concerns

Fears of a potential recession in the U.S., driven by trade frictions and weak consumer demand, create uncertainty for global investors. Such a slowdown could impact Indian exports and trigger a cautious approach from foreign investors. However, India’s domestic consumption-driven economy offers a buffer, reducing reliance on external demand.

Shifting FPI Preferences

While FPIs returned in March, India faces competition from other emerging markets like China. Stimulative measures in the Chinese economy have drawn attention, particularly as India’s valuations appear stretched. However, India’s regulatory stability, democratic framework, and consistent policy signals continue to appeal to long-term investors.

Geopolitical and Policy Uncertainties

Geopolitical tensions, including ongoing conflicts in Europe and West Asia, influence oil prices and supply chains. India, being a major energy importer, faces inflation risks from rising crude prices. Additionally, domestic policies such as the planned introduction of reciprocal tariffs and taxation changes can influence market sentiment. High-level trade negotiations remain ongoing to prevent friction with key trading partners.

Indian stocks have proven their ability to hold ground amid global uncertainty. Strong economic fundamentals, measured policymaking, and diversified sectoral strength have underpinned the market’s resilience. Though global risks and policy transitions present challenges, Indian markets continue to offer attractive opportunities for both domestic and foreign investors.

With strategic reforms, disciplined fiscal management, and focused infrastructure investments, Indian equities are well-positioned to navigate the rough terrain of 2025 while laying the foundation for sustained long-term growth.