Indian Equities Lag EM Peers in 2025 After 5-Year Boom; DIIs Provide Crucial Support: RBI FSR

• India's equities lagged emerging markets in 2025, ending a five-year period of strong outperformance (2020-2024), as per RBI's Financial Stability Report.
• Underperformance attributed to tepid corporate earnings, slow GDP growth, high valuations, FPI outflows, rupee depreciation, and limited AI-driven trades.
• Despite lagging, Indian markets showed remarkable resilience with subdued volatility (NSE VIX at 10.9 vs CBOE VIX at 15.8) and reduced co-movement with US markets.
• Domestic Institutional Investors (DIIs) provided significant stability, with their ownership surpassing Foreign Portfolio Investors (FPIs).
• DII net inflows of Rs 7.4 lakh crore in 2025 sharply outweighed FPI net outflows of Rs 1.6 lakh crore, cushioning market volatility.

Why It Matters: Indian equities lagged in 2025 but DIIs provided crucial stability amidst FPI outflows and global uncertainty.