Home-made flavor

Outperforming profitable companies over one and three years set to attract enhanced participation of local investors

- - Sachin Dabhade

As the local stock markets headed into New Year, the overall sentiment appeared to be optimistic on the back of a strong economic rebound coupled with tepid inflation and generally upbeat global cues. Risk appetite stayed well in place over the last few months. Capturing the mood, local equity indices marched towards record highs, extending a recovery after the benchmark Nifty 50 index had tested a 10-month low in April 2025.

The rally was reassuring for domestic investors as 2025 saw the benchmark index Nifty 50 provide a return of around 9% despite an outright selloff from overseas investors in the last few months. In fact, foreign institutional investors (FIIs) recorded a net outflow of around Rs 1.60 lakh crore in 2025. This came on top of a negligible net inflow of Rs 427 crore in 2024, thereby rounding off two years of virtually no net buying of Indian stocks by overseas investors. However, given the broad economic resilience and timely boost to the consumption cycle owing to cut in income tax, the mega GST overhaul and supportive aggregate supply conditions, the attractiveness of Indian economy is unlikely to be sidelined.

The annual returns delivered by the Nifty50 in 2025 have been modest. But the headline index maintained a trend displayed in 2024, when it gave a similar performance. The last two years have exhibited a classical mean reversion case in historical terms for the index returns after it spiked around 20% in 2023. The Nifty Price-Earnings ratio or P/ E ratio, calculated on a monthly basis, is showing a narrow movement has it hovered in a range of around 20-23x for the whole year.