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The Sensex has effectively gone nowhere over the past 12 months, posting a -0.7% return and falling behind most global peers, a sobering outcome despite a backdrop of policy tailwinds like GST and income-tax relief, interest rate cuts, and resilient domestic fund inflows.Analysts point to weak corporate earnings, persistent foreign portfolio investor (FPI) selling, and elevated valuations as the key reasons behind the muted performance.From being one of the strongest performers among global and emerging markets just a year ago, Indian equities have slipped to the bottom of the performance table in what many market participants are calling a “stunning reversal of fortune.”So far in 2025, FPIs have pulled out Rs 1.4 lakh crore from Dalal Street, reallocating investments to other countries.According to Naveen Chouhan, “The persistent FII selling trend over the past year can largely be attributed to two primary factors: superior performance of developed markets and currency concerns. FIIs are reallocating capital to their home markets and other developed economies where returns have been more attractive relative to emerging markets. The Indian rupee has weakened relative to major global currencies.”Earnings have also failed to meet expectations. Corporate earnings growth for Nifty 50 companies has been limited to mid-single digits, with delayed demand recovery and input cost pressures weighing on margins.“If you look at last year, valuation peaked around September-end and with corporate earnings growth moderating to mid-single digits, it is no surprise that equity indices have hardly delivered any returns over the past year,” said Krishnan V R, Chief of Quantitative Research, Marcellus Investment Managers.Market sentiment has also been hit by political and policy-related uncertainties. “Populist measures adopted at the beginning of the 3rd term by the government and pursuant slowdown in government capex also deteriorated market sentiments. Global uncertainties led to flight of capital to safe havens,” said Sunny Agrawal, Head of Fundamental Research at SBI Securities.Trade tensions with the US have added to the pressure, creating policy uncertainty that heightened investor caution and accelerated portfolio shifts towards cheaper emerging markets.Despite FPI selling, steady mutual fund SIP inflows have helped cushion the market from a deeper fall. Retail investor participation through SIPs remains strong, limiting downside pressure. Analysts note that the market is currently in a time correction phase, with valuations staying elevated and prices consolidating instead of declining sharply.“Markets are essentially moving in line with earnings growth. The upcoming Q2 earnings season is likely to be in a similar line to Q1; meaningful activities are likely to be visible in the second half of the current fiscal year,” said Neeraj Chadawar, Head of Fundamental and Quantitative Research, Axis Securities.What’s next?Experts see potential catalysts for a turnaround.“There is a growing anticipation of additional policy actions that could support the market. CRR cut by the RBI, which would release liquidity into the system and potentially lower interest costs for businesses and interest rate cuts expected in the next 2 to 3 months,” said Shrikant Chouhan, Head Equity Research at Kotak Securities.Brokerage firm Emkay Global is also optimistic: “The earnings cycle is bottoming out and strong fiscal and monetary stimuli should catalyze a consumption-led macro recovery in 2HFY26. Domestic flows remain robust and there are no signs of weakening – this offsets the FPI and promoter selling to a large degree. There may be some choppiness in the short term until earnings visibility emerges: we see any significant correction as an entry opportunity.”Analysts stress that flat growth periods can provide long-term investors with opportunities to accumulate units at lower prices through SIPs. “A phase of above-average returns will be followed by below-average returns and this goes on... decide the intensity of such mean reverting oscillation,” said Umesh Kumar Mehta, CIO, SAMCO Mutual Fund.While near-term performance has been disappointing, market experts remain confident that India’s long-term growth story remains intact and expect strong earnings growth revival from FY27 onwards.Also read: Defence tech companies can join $500 billion club in 5-8 years: Gurmeet Chadha(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Indian equities capped off another strong week, with the Nifty holding on to gains and market sentiment buoyed by global cues and domestic triggers. With the new GST regime kicking in from September 22 and the festive season around the corner, optimism is building, though experts caution against overplaying the consumption theme.ET Now spoke with Sudip Bandyopadhyay, who shared his perspective on the market’s recent rally, the upcoming GST reset, and the sectors worth watching.On the market’s recent run-up“After quite a period of lull and negative news flow, we had a consecutive three weeks of upswing and that is definitely good for the market. Bit of consolidation today also is good. After the market has run up quite a bit, a bit of consolidation is good for the health of the market,” he said.He added that global and domestic triggers remain supportive. “US Fed has already reduced rates and there are indications of more rate cuts. There are talks about some resolution between India and the US on the tariff front. Of course, the big event is the 22nd when the new GST regime kicks in. That coincides with Navaratri, so we will see an upsurge in sales. I will be very keenly watching the September sales numbers once companies start declaring in October.”On GST cuts and consumption betsBandyopadhyay warned that investors should not expect outsized gains purely from GST rationalization. “Unfortunately, I do not think so. The GST cut related benefits have already been factored in by the market and the prices have already moved up. So, I do not think I will try to play the GST rationalization trade any longer. I will be selective.”He also pointed to near-term earnings pressure. “Second quarter numbers will not be anything great. Between the announcement and 22nd September when the new rates kicked in, things had slowed down a bit. That impact will be visible. By Diwali, many results will be out, and we don’t believe they will be significantly better than Q1.”On long-term consumption outlookDespite his caution on GST-specific plays, Bandyopadhyay sees consumption staying central to India’s growth story. “Everything whatever had to be done by the government has been done as far as the consumer is concerned. You had the income tax relief, a decent monsoon, rural income going up, inflation down, and GST rationalization. Now if the numbers do not pick up, then problems are deep rooted. I do not think that will be the case. So, we will be watching the numbers very-very carefully from next month onwards.”On sectors to watchBandyopadhyay highlighted cement, infrastructure, and auto ancillaries as areas of opportunity. “We have been liking UltraTech for quite some time. We do like construction, infrastructure, and Larsen & Toubro definitely deserves to be in a long-term portfolio. Apart from that, I would definitely look at auto ancillaries, particularly companies catering to both IC and EV engines. They are well positioned.”On areas to be cautiousWhile not sounding alarm bells, he advised some restraint. “Largecap IT is one space where one needs to be cautious. They will continue to give decent returns over a long period, but nothing spectacular. Real estate has run up quite a bit, so the scope for appreciation in the short term is limited. Metals also have run up, so the scope for significant appreciation in the short, medium term is limited.”