Nifty and Sensex: Why the Indian stock market is impressing despite the turbulence

At a time when many emerging markets are struggling to regain sustainable momentum in an uncertain global environment, India stands out as a remarkable exception. 

Its two main stock market indices, the Nifty 50 and the Sensex, are posting impressive performances, despite recent bouts of volatility. How is this resilience explained? And what drives this strength?

The Indian stock market's outsized performance

Since the lows of Covid-19 in March 2020, the Sensex has more than tripled, rising from 27,500 to over 84,000 points in September 2024, now slightly down around 82,000.

Sensex index chart. Source: TradingView.

Over five years, the Sensex index has risen by 135%, significantly outperforming both developed and emerging markets. The Nifty 50 is following a similar trajectory, with robust growth driven by giants such as Reliance Industries, Infosys, HDFC Bank and Tata Motors.

Small and mid-caps even outperformed large caps, a sign of strong risk appetite and growing domestic participation.

An Indian economy in the throes of structural change

The strength of the Indian markets rests on solid economic and demographic foundations:

Indian GDP growth is among the highest in the world, with projections at 6.6% and 6.7% for 2025 and 2026, respectively, according to the UN. By comparison, the United States is expected to grow by 1.9% in 2025 and 2.1% in 2026, and China by 4.8% in 2025 and 4.5% in 2026.

Favorable demographics. India is now the world's most populous country, with a young, urban and increasingly connected population.

Far-reaching reforms under Prime Minister Narendra Modi, since 2014: digitization, infrastructure, tax simplification, attractiveness to FDI, and support for the banking sector.

Development of the digital economy: India is becoming a global hub for technological services, but also an increasingly digitalized domestic market.

India could become the world's fourth largest economy this year, ahead of Japan, while Morgan Stanley even anticipates that India will become the world's 3rd largest economy by 2027, and could experience its longest bull market ever.

The key role of domestic investors

Another major transformation is that of investment flows. India has seen its number of investors triple since 2019, to 130 million, according to Fortune India. Indian individuals now represent a stabilizing force, absorbing sales by foreign investors, particularly during correction phases.

While foreign flows were negative in 2024 and early 2025, domestic flows reached record highs, notes CNBC. This trend, likened to an Indian-style "401(k) moment", is reminiscent of the explosion of US markets in the 1980s thanks to retirement savings.

A favourable political context... for now

Modi's re-election in 2024 for a third term has reassured the markets, which are betting on the continuity of economic reforms.

However, the Bharatiya Janata Party (BJP) majority is now dependent on alliances, which could complicate certain initiatives in the medium term.

Real risks at play

All is not rosy, however. Several factors limit immediate enthusiasm:

• High valuations: Indian market multiples are among the most expensive of emerging markets, with P/E ratios often in excess of 20, compared with 10 to 12 elsewhere, note Morgan Stanley and BNP Paribas.
• Pressure on the Indian Rupee (INR): The structural trade deficit and capital outflows are weighing on the currency, eroding returns for foreign investors.
• Economic slowdown: Concerns about exports and the impact of trade wars.

Outlook: healthy consolidation or end of cycle?

Many experts believe that the correction in Indian stock indices between September 2024 and April represents a healthy adjustment after several years of strong gains.

The consensus remains optimistic for the medium term, buoyed by solid fundamentals, dynamic domestic consumption, and the rise of technology and finance.

The market's ability to absorb exogenous shocks, notably the trade war, while maintaining robust domestic flows, is a rare asset in the emerging world.

The Nifty-Sensex duo shines not only for its past performance, but also for the structural transformations it embodies. An increasingly formalized, digitalized economy, supported by a young, stock-market-invested population.

Despite stretched valuations and short-term risks, India's long-term potential remains immense, provided that political stability and economic reforms continue on their current path.