India’s stock market in 2025 and the growing appeal of US bonds
Live MintIndia’s stock market enjoyed a bull run the past five years, but several factors, chiefly rising US bond yields and a risk of slowing domestic corporate earnings, are likely to weigh on it in 2025. Rising US bond yields amid disappointing domestic corporate earnings growth and high stock valuations in India have resulted in a recent rush of foreign fund outflows. This has caused the yield gap—the difference between the Nifty earnings yield and the US 10-year bond yield—to shrink to near zero from 40 basis points on higher foreign portfolio investor outflows from India in that period. “While there is a different class of FPI that invests in debt and equity of EMs like India, the narrowing yield gap affects the FPI equity investor too in light of the currency risk assumed while investing in risky emerging market equities," said Madan Sabnavis, chief economist at Bank of Baroda.