In 2025, the Nifty 50 underperforms its international counterparts, with inflated valuations affecting its performance.
In the first half of 2025, the Indian stock market has underperformed its global counterparts, with the NIFTY 50 returning 5.99% year-to-date (YTD). This underperformance can be attributed to a combination of sectoral issues, structural challenges, and global economic uncertainties.
The IT sector notably underperformed due to deferred orders and new investments, which negatively impacted earnings estimates for FY26. Other sectors such as autos and real estate also declined, while only banking and pharma showed modest gains. Structural challenges like margin pressures and rising raw material costs affected companies, particularly in defensive sectors like FMCG. There was a broader sectoral rotation away from defensives toward growth-oriented stocks, impacting overall market sentiment.
Global headwinds, including tariffs and trade tensions, particularly related to US trade policies, subdued the economic outlook and raised worries about export growth, corporate earnings momentum, and foreign fund outflows. These factors intensified investor caution. Selling pressure was exacerbated by profit booking ahead of earnings reports and cautious stances by investors amid uncertainties, further contributing to market declines.
Regarding valuations, while specific valuation multiples were not detailed, the Indian market has seen a mixed performance across market caps and sectors in 2025. Smallcaps and growth-oriented segments outperformed largecaps, suggesting some premium valuation likely exists in high-beta smallcaps versus more defensive or larger-cap stocks. Compared to major global indices, Indian stocks underperformed the MSCI Emerging Markets (EM) index, indicating relatively weaker earnings growth or risk perceptions, which may be reflected in valuation discounts compared to peers.
As of July 22, 2025, the Nifty 50 has a price-earnings multiple of 24.6 and a price-to-book ratio of 5.3. On both TTM and forward earnings basis, the NIFTY 50 is currently trading close to its 10-year average price-to-earnings (PE) multiple. The Nifty 50 is the most expensive after the S&P 500 in terms of valuation.
Meanwhile, the underperformance by the Indian market is partly a catch-up for Germany and South Korea, as their current outperformance is partly due to continued policy support in Germany and persistent demand for chips and AI-related products in South Korea. Relatively low valuations, such as Hang Seng's P/E of 14.7 and DAX's P/E of 20.8, make these markets more attractive.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group, has stated that the Nifty 50 remains well below the all-time high from September 2024. The Eurozone's Euro Stoxx 50 has a YTD return of 7.21%, while the UK's FTSE 100 has a YTD return of 10.29%. South Korea's KOSPI has returned 32.11% YTD, and Brazil's IBOVESPA has a YTD return of 11.54%. The Hang Seng index has a YTD return of 25.27%, and Germany's DAX has returned 20.9% YTD. The US benchmark index, S&P 500, has returned 7.21% YTD.
Investors seeking value and exposure to structural themes like rearmament in Europe and AI in Asia may find these markets more appealing, as they offer valuation discounts compared to the Indian market. However, it is essential to consider the unique challenges and opportunities within each market before making investment decisions.
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- The IT sector in India underperformed in the first half of 2025 due to deferred orders and new investments, negatively impacting earnings estimates for FY26.
- Other sectors such as autos and real estate also declined, while only banking and pharma showed modest gains.
- Structural challenges like margin pressures and rising raw material costs affected companies, particularly in defensive sectors like FMCG.
- There was a broader sectoral rotation away from defensives toward growth-oriented stocks, impacting overall market sentiment.
- Global headwinds, including tariffs and trade tensions, particularly related to US trade policies, subdued the economic outlook and raised worries about export growth, corporate earnings momentum, and foreign fund outflows.
- As of July 22, 2025, the Nifty 50 has a price-earnings multiple of 24.6 and a price-to-book ratio of 5.3, being the most expensive after the S&P 500 in terms of valuation.
- Investors seeking value and exposure to structural themes like rearmament in Europe and AI in Asia may find markets like Germany and South Korea more appealing, as they offer valuation discounts compared to the Indian market.
