Indian equities faced a challenging 2025 with record foreign portfolio investor (FPI) outflows, despite strong domestic economic fundamentals. Geopolitical tensions with the US, including sanctions and exclusion from the Pax-Silica initiative, contributed to FPI withdrawals totaling Rs 2.4 lakh crore. This led to significant underperformance of Indian assets compared to other emerging markets, with the rupee also weakening considerably. Despite RBI rate cuts, benchmark yields remained flat, highlighting a disconnect between domestic conditions and market performance.