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Record foreign portfolio investor (FPI) outflows capped India's stock market rally in 2025, with $18 billion sold, the highest annual outflow on record. Despite this, domestic buying supported the Nifty 50 and Sensex, which rose about 10%. Analysts predict a revival in foreign inflows in 2026 due to easing valuations and improving earnings, as foreign ownership of Indian equities hit a 15-year low. IT stocks were most affected by the selloff, driven by geopolitical concerns and U.S. tariffs. Domestic mutual fund holdings reached a record high, indicating a shift in market ownership.
The BSE Sensex fell 0.3% to 84,759, and the NSE index also dropped 0.3% to 25,959 due to low participation and foreign outflows. The Indian rupee decreased 0.1% to 89.9425 against the U.S. dollar amid corporate demand. The 10-year government bond yield rose to 6.5729% as market sentiment weakened ahead of a state debt sale. Overnight index swap rates remained stable at 5.4725% for one year and 5.93% for five years, while the overnight call money rate was at 5.55%.
Indian markets remained flat in Monday morning trade, with the BSE Sensex around 85,011 amid thin trading and foreign outflows. Gains in metals and manufacturing offset declines in financial services and banking. Traders await Indian industrial and manufacturing data. Tata Steel rose 2.4%, JSW Steel 1.0%, while Adani Ports and Power Grid fell. Coforge advanced 0.9% after announcing the acquisition of AI firm Encora.
Indian government bonds may start the week lower due to weak auction bids, but the Reserve Bank of India's bond purchases could limit losses. The RBI plans to buy 500 billion rupees of bonds weekly until January 23, alongside a $10 billion dollar-rupee swap, to maintain banking system liquidity. The 10-year bond yield is expected to fluctuate between 6.54% and 6.59%. India's overnight index swap rates are struggling for direction amid low trading volumes.
Indian government bonds fell as weak demand at a debt auction sparked a selloff, raising doubts about the rally's sustainability. The 10-year yield rose to 6.5637%. New Delhi sold bonds at higher-than-expected yields, exposing demand weakness. Despite improved sentiment, demand-supply balance remains fragile. RBI plans to infuse liquidity, including bond purchases and swaps, aiming to boost liquidity rather than steer currency or yields. OIS rates ended higher amid mild paying interest.
