Indian Stock Market Faces Volatility In 2025 Amid Foreign Selling & Domestic Buying Trends; Time To Bet?

At the start of 2025, the Indian stock market has been marked by significant volatility. Foreign investors are consistently selling, while domestic investors are actively buying. Despite this, concerns about quality persist. Large-cap stocks have shown resilience, but the overall market is weakening.

Mid-cap and small-cap stocks have seen a sharp decline in 2025. The Nifty Midcap 150 index has dropped by approximately 7%, and the Nifty Smallcap 250 index has fallen by around 9%. In contrast, the Nifty 50 index has only decreased by 2%. Notably, 280 stocks (70%) out of 400 in these indices are trading below their respective 200-day moving averages (DMA).

After years of strong returns, mid-cap and small-cap stocks have underperformed. The last time these indices had negative returns was in 2019 when the Nifty Midcap 100 fell by 4% and the Nifty Smallcap 100 by 10%. Since then, these stocks have rallied, becoming more expensive than large-cap stocks.

Investors now find better value in large-cap stocks and prefer them over mid- and small-cap stocks in 2025. Currently, 109 stocks (72%) out of 150 in the Nifty Midcap 150 index are trading below their respective DMA. Similarly, 171 stocks (68%) in the Nifty Smallcap 250 index are below their DMA.

Kalyan Jewellers India, KEI Industries, Aditya Birla Real Estate, KEC International, Oracle Financial Services Software, Oberoi Realty, and PB Fintech have faced significant losses during this period, with declines reaching up to 37%. On the other hand, Vodafone Idea, SBI Cards and Payment Services, Navin Fluorine International, SRF, Shyam Metallics and Energy, Redington, and Sundaram Finance have gained up to 20% this year.

Big Factors for the Sector

The dollar index and US bond yields remain high. This situation makes it challenging for foreign institutional investors (FIIs) to return to the Indian market soon. Both foreign selling and domestic buying are expected to persist.