The range-bound trade of the Indian stock market, which started in June this year, continues despite GST reforms, India’s strong GDP growth outlook, healthy monsoon and indications of an India-US trade deal.
Since June, the Nifty 50 has inched up only 1 per cent, trading within a narrow band of 25,669.35 to 24,337.50. Over the past three months, several major IT and financial names — including HCL Tech, Axis Bank, IndusInd Bank, Shriram Finance and TCS — have been among the top losers in the index.
Weak earnings and foreign capital outflow have been the key reasons behind the domestic market’s subdued performance since June. But why is the market not witnessing a sustained rally despite favourable growth-inflation dynamics?
What is keeping the Indian stock market range-bound?
While healthy growth outlook of the country keeps the undertone positive, the market is unable to sustain and extend gains due to lingering ambiguity over the US tariff path.
US President Donald Trump has signalled that India and the US will continue their trade negotiations and expressed optimism that a deal could be finalised soon. However, there are also reports that he is pressing European Union leaders to impose 100 per cent tariffs on India and China for buying Russian oil.
“The market is currently confused due to contrasting signals on the US tariff front,” said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.
Apart from Trump tariffs, relentless selling by foreign institutional investors (FIIs) is limiting the gains of the Indian stock market. FIIs have sold off Indian stocks worth over ₹1 lakh crore in the cash segment since July due to an earnings-valuation mismatch, a stable dollar, higher US tariffs, and better investment avenues in other emerging markets.
Jahol Prajapati, a research analyst at SAMCO Securities, observed that the Indian stock market has been stuck in a tight range as global and domestic forces pull in opposite directions.
“On one hand, foreign investors have been net sellers, valuations look stretched, and uncertainties around trade negotiations, tariffs, and geopolitical tensions keep investors cautious. Persistent rupee weakness and mixed corporate earnings guidance are also limiting momentum. On the other hand, the market is refusing to fall sharply due to steady domestic inflows—monthly SIP contributions and equity fund inflows remain strong, providing a reliable cushion against FII outflows,” said Prajapati.
Devarsh Vakil, the head of Prime Research at HDFC Securities, underscored three main reasons behind the range-bound trade of the Indian stock market:
First, corporate earnings have been lacklustre with Nifty-50 companies delivering only 8 per cent growth, below market expectations, as delayed urban demand recovery and persistent input cost inflation weighed on performance, said Vakil.
Second, valuation concerns persist as Indian equities trade at premium levels compared to emerging market peers. The MSCI India Index currently trades at a CY26E P/E of 20 times versus 12.4 times for MSCI Emerging Markets, reflecting a 65 per cent premium that remains above the long-term average of 49 per cent, though it has moderated from December 2024’s 85 per cent premium, Vakil said.
Third, geopolitical concerns with neighbours and trade tensions with the US, due to tariffs on select Indian goods and stalled trade negotiations, have created policy uncertainty and added risk premiums to equity valuations, Vakil pointed out.
These developments have heightened FII caution and accelerated portfolio shifts toward cheaper emerging markets.
When can we expect a trend reversal?
A trend reversal in the Indian stock market is possible only after global risks ease, earnings growth revives, or policy clarity attracts renewed foreign participation.
Vakil of HDFC Securities expects the market trend reversal to materialise by late 2025 or early 2026, as and when the following triggers materialise:
(i) Vakil said the most significant immediate trigger would be a mutually agreeable resolution to ongoing trade negotiations with the US, which would eliminate policy uncertainty and restore FII confidence in Indian markets.
(ii) While Q1 earnings have been moderate, a stronger performance in Q2 (July-September 2025) would signal a pick-up in economic activity and corporate health, reassuring investors and driving stock-specific rallies, said Vakil.
(iii) A robust and well-distributed monsoon season will boost agricultural output, enhance rural incomes, and drive consumption across FMCG, automobiles, and consumer durables sectors, Vakil said.
(iv) Easing global interest rates would make emerging markets like India more attractive for yield-seeking investors, potentially triggering renewed capital inflows.
Divya Agrawal, Research Analyst & Advisory (Fundamental), Wealth Management, Motilal Oswal Financial Services, said a potential breakthrough in the India-US trade deal, coupled with sustained double-digit earnings growth and a revival in FII buying, could act as the key catalysts for a decisive trend reversal in the near term.
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