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Indian equities have had a quiet year by headline numbers. The Nifty50 is up ~8% over the past twelve months—modest when compared with the sharp rallies in South Korea (KOSPI +71%), Japan (+30%), Brazil (+21%), China (+17%), the United States (+13%) and Europe (+12%).

But short-term snapshots often hide more than they reveal.

Shift the lens to the past three years, and the picture changes meaningfully. Despite geopolitical shocks, supply-chain disruptions, rate volatility and tariff actions, the Nifty50 has delivered +41%, materially outperforming Europe and China, and broadly matching Brazil. Korea (+82%), Japan (+76%) and the US (+68%) remain the standout performers.

Bottom line: 2025 has been a year of consolidation for India—less about chasing returns, more about normalising valuations and aligning equity performance with earnings and nominal growth.

And that’s not a bad thing. It’s what mature markets do.

A Decade of Maturity: Indian Equities Have Entered a New Regime

Over the past ten years, the Indian market has undergone a structural transformation. Three trends stand out:

1. Volatility has declined meaningfully

The wild swings of the 1995–2015 era—multi-year bull and bear cycles, violent drawdowns and dramatic rebounds—have moderated. Price corrections still happen, but the amplitude and duration have compressed.

2. Domestic participation has surged

Rising household savings, the dominance of mutual fund SIPs, and a more informed investor base have reduced dependence on foreign flows. DII inflows now act as a strong counterweight during periods of FPI selling.

3. Long-term Nifty returns have stabilized

The Nifty’s 5-year rolling CAGR, which used to oscillate between -1% (2012) and +41% (2007), now hovers in a steady 12–15% band—broadly aligned with nominal GDP and earnings growth.

These shifts point to a market that has grown broader, deeper and more resilient, driven by local capital rather than hot flows.

Long-Term Returns: Normalization Is a Feature, Not a Bug

Between 1995 and 2015, long-term returns were lumpy. Market timing mattered enormously. Only investors with surplus capital and high risk-tolerance could endure 25–50% drawdowns and still stay invested.

The past decade (2016–2025) tells a different story:

5-year rolling CAGR has averaged ~13%, staying in a tight 12–15% band.

2019 marked the low (~8%) and 2021 the high (~16%)—both still far more contained than earlier decades.

The Nifty has not delivered negative calendar-year returns in any year since 2016—a sharp contrast to its earlier behaviour.

This stability has democratized equity investing.

Millions of middle-class savers now invest through mutual funds and SIPs because the market no longer resembles a casino. It behaves more like a mainstream asset class.

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Why Returns May Moderate Further

Looking ahead, long-term equity returns are likely to settle into a 9–12% range.

Not because the market is weak—but because the economy is maturing.

Three structural forces explain this:

1. A lower inflation–lower rates equilibrium

As India sustains a more stable inflation regime, the nominal GDP growth corridor naturally compresses.

2. Earnings growth tracks nominal growth more closely

The earlier periods of outsized earnings acceleration were driven by leverage cycles and low base effects. Today, corporate balance sheets are healthier, but growth is more linear.

3. Premium valuations are harder to expand from here

With the Nifty already trading at elevated multiples relative to long-term averages, re-rating becomes a limited source of returns. Fundamentals—not multiple expansion—will do the heavy lifting.

Implication:

Investors should keep return expectations moderate, ignore short-term volatility, and avoid the temptation to time markets in a regime where long-term ranges are becoming more predictable.

Foreign Flows: The Tail No Longer Wags the Dog

FPIs have been net sellers in Indian equities in three of the past four years:

2024: Net equity outflow ~₹70bn; debt inflow kept total flows positive.

YTD 2025: Net equity outflow ~₹1.44trn; nominal debt inflow.

Yet despite persistent outflows, the Nifty is +8.8% in 2024 and +10.5% in YTD 2025. This resilience underscores two points:

1. Domestic inflows are now the primary stabiliser

SIPs, EPFO allocations and DII flows have absorbed foreign selling without destabilising the index.

2. FPI selling has historically coincided with global—not domestic—shocks

The only three negative years for the Nifty in the past 25 years—2001, 2008 and 2015—were all linked to global events (dot-com crash, GFC and the China/Greece scares).

Today, India’s domestic liquidity ecosystem is far thicker than it was during those periods.

Conclusion:

While FPI flows matter for sentiment, they no longer dictate market direction the way they once did.

The Adult Market: What Investors Should Do

As Indian equities transition into a more stable, predictable regime, investor behaviour must evolve too:

·         Moderate expectations — long-term returns are likely to settle in a 9–12% band.

·         Stay the course — short-term volatility is normal and less threatening than before.

·         Avoid timing the market — structure now matters more than cycles.

·         Stay disciplined with SIPs — they remain the most effective way to participate in a maturing market.

Indian equities are no longer the wild child of emerging markets.

The market has grown up—steady, broader, more domestically anchored.

It’s time investors adjust their mindset accordingly.