10 things investors learnt in 2025; and what it means for 2026

29 Jan 2026 , 12:50 PM

LOOKING BACK AT 2025; FORWARD AT 2026

Year 2025 has been a mixed year in several ways. The indices did not rally to sharply, but the Nifty still gave 10.5% returns for the year. However, the volatility and negative returns were visible in small cap stocks. Year 2025 was the year when global risks manifested in a big way. The US indulged in a lot of saber-rattling and eventually imposed heavy penalties on India. India used the opportunity to build closer ties with China and Russia; although the global trade situation still remains quite fluid. Here we look at 10 key investments insights from 2025 and what it means for the year 2026.

1)    MULTI-ASSET ALLOCATION IS THE NEW BEAST ON THE STREET

Diversification acquired a new meaning in year 2025. In a year when debt returns remained subdued and equity indices struggled to give double-digit returns; the real cream lay elsewhere. In 2025, Gold rallied by nearly 70% and silver rallied by over 150%. You would have been king if you had invested in gold ETFs or silver ETFs. You would have also done very well if you had invested in multi-asset allocation funds (MAAF), which have a reasonable exposure to gold and silver. Diversification across asset classes came of age.

What it means for 2026?

The takeaway for year 2026 is that investors now need to start looking less at investing and more at asset allocation. Sit with your investment advisor and check out how to spread your funds across asset classes so you meet your goals. By diversifying across asset classes, you not only reduce risk, but also boost risk-adjusted returns. A better way is to opt for hybrid funds that can offer such diversification and churn in a tax-efficient manner.

2)    FOREIGN FLOWS ONLY MATTER UP TO A POINT FOR INDIAN MARKETS

If you look at equity selling by FPIs in 2025 it is quite disconcerting. They were net sellers in secondary market equities of $27.4 Billion, while buying IPOs of $8.4 Billion. That meant FPIs were net sellers in equities to the tune of $19 Billion in 2025. However, despite such heavy selling in 2025, the Nifty rallied by 10.5% for the year. While FPIs were selling, there was aggressive buying by domestic institutions, which more than made up.

What it means for 2026?

Going ahead, Indian markets will rely on FPI flows only up to a point. India has a strong domestic market and also a strong domestic institutional base,  that manages close to $2 Trillion. In 2026, FPI flows will still matter because they bridge the fiscal gap and also help the rupee stabilize. However, in terms of FPI impact on valuations, it will be limited.

3)    BUT FOREIGN DIVERSIFICATION IS STILL A BIG OPPORTUNITY

That is an interesting insight. Even as FPI flows may have limited criticality for Indian markets, investors have started looking at global diversification in a big way. Investing in global ETFs as well as global indices and commodities is a dual advantage. On the one hand, it reduces domestic vulnerability and on the other hand it helps participate in global growth. In 2025, while the Nifty rallied 10.5%, markets like the NASDAQ and the Nikkei of Japan rallied well over 30%. That is the what foreign diversification offers.

What it means for 2026?

Apart from equity, debt, gold and REITs, investors must seriously look at allocation to global equities and other asset classes. This will not only reduce the domestic concentration risk, but also boost returns by participating in the right markets. Investors must start looking at diversification into global assets as a part of their long-term financial plan.

4)    SMALL CAPS ARE MORE VULNERABLE TO MACRO RISKS

For investors who had been lulled into complacency about mid-cap and small cap outperformance, year 2025 was a return to reality.  While large caps  generated 10% and mid-caps 5% returns, the small caps  saw valuations contract by -5%. Export barriers, punitive tariffs, volatile oil prices, and rupee volatility hit smaller stocks hard. Bigger stocks were also impacted, but they had the in-built buffers to handle such an eventuality.

What it means for 2026?

Prior to 2025, small caps had generated stellar returns  for 3 years in a row. Even today, small caps have still done very well over 3-year and 5-year time frames. Clearly, the message is that if you want to be in small caps, you have to take a longer-term perspective of 8-10 years. Also, focus on asset allocation wherein small caps have a limited exposure to the overall portfolio and do not overly influence your portfolio on the downside.

5)    MARKETS REWARD EARNINGS AND GROWTH TRAJECTORY

Investors often wonder why new-age companies with operating losses still attract investors. The reason is a good growth strategy. It is not just about earnings and cash flow generation. Even in the ecommerce space, Eternal (formerly Zomato) has been attracting a lot of positive action despite sustained losses. However, its counterpart Swiggy is struggling to add value to shareholders. The difference, probably lies in the way the growth story has been communicated to stake holders and the clarity of the future plans of the company.

What it means for 2026?

It is essential to focus on earnings, but not get obsessed with them. Even companies like Amazon and Meta (which are trillion-dollar companies today) had a tough time proving that cash flows will eventually come. Focus on such new-age companies with a clear trajectory of believable growth and a game plan for the same.

6)    PASSIVE INVESTING IS A SMART STRATEGY TOO

If you look at the passive Nifty funds and Nifty ETFs, they have given average CAGR returns of 14.0% over the last 5 years. Over longer periods of time, such index funds and ETFs compound wealth faster due to their lower costs. With low volatility in index ETFs, the problem of choice and selection was much lower than in active funds. Passive funds constitute around 17% of total mutual funds AUM and growing at a rapid pace.

What it means for 2026?

Make indexing as part of your investment strategy. In fact, for your large cap allocation take a serious look at passive funds as they are lower in cost and are also more flexible. You can also use these passive funds to reallocation your exposure to various asset classes.

7)    A SMALL PUSH CAN HELP RETURNS IN A BIG WAY

When we look at sectoral triggers,  we normally look for big stories. However, we often see that a small nudge is enough to push up stocks. In early 2025, higher possible allocations to defence by Europe and more outsourcing from India, triggered a massive rally in defence stocks. Similarly, cut in GST rates on automobiles, led to a 40% rally in auto stocks like Eicher, Maruti and Hero Moto. These moves were just well timed and coincided with the big demand season, triggering a big rally.

What it means for 2026?

Don’t worry about these triggers in your core allocation portfolio. However, in your alpha portfolio where you are looking at opportunities, look for such positive and negative triggers. A classic case is the Sin Tax announcement on ITC. You can either take long positions on these news flows or even sell futures where triggers are bearish.

8)    EQUITIES CAN RALLY EVEN WHEN MACROS ARE QUESTIONABLE

We have heard this for a long time. In 2025, the Nifty demonstrated this, giving positive returns even when global cues were negative. For example, equities can rally even due to the TINA (there is no alternative) factor. Also, low rates can be positive for equities for a very long time.

What does mean for 2026? Don’t correlate macros and equity markets beyond a point. As Kaynes famously said, “Markets can remain irrational much longer than investor can remain solvent.” If markets are giving a signals contrary to macros, just listen to the markets.

9)    EVEN FADS ARE GROUNDED IN REALITY; AI FOR EXAMPLE

There have been concerns over new-age idea like artificial intelligence (AI) after celebrated investors like Michael Burry called NVIDIA and Palantir a bubble. However, despite these warnings, AI stocks continue to rally and NVIDIA at $4.50 Trillion remains the most valuable company in the world.

The key takeaway is that as much as AI looks like a fad, it is also grounded in reality. The extent of change that it is likely to make to business is humongous. So, the moment you see a bubble-like rally, don’t rush to sell the idea.

10)           A YEAR THAT VALUED THE HEAD OVER THE HEART

That is true in most cases, but 2025 underlined that investors who stay calm and calculated do better than the investors who panic. After all, when you panic, you subsidize the other investor who does not panic. It is best you let your head rule over your heart, because a well-though through logic works best in stock markets.

That is the final big message for 2026. Don’t get carried away by the sweep of the moment. Don’t let your heart rule over your head and let not sentiments influence your investment decisions. Cool and calculated investing may be boring, but that is what really works!

 

LLM Summary Year 2025 has been tumultuous in every sense of the word. Global markets have been volatile, FPIs have been selling and the rupee has struggled. In the midst of all these challenges, the Nifty did well to rally 10.5% in the year.  What were the takeaways? There were several takeaways from 2025 for investors. The area of traditional diversification has given way to multi-asset diversification. Who would want to lose out on gold and silver in a year that these precious metals rallied 70% and 150% respectively. The year 2025 also underlined that even if earnings are not visible today, the markets are likely to be happy as long as a clear trajectory exists about the future direction. If the trajectory is also lacking, then you are seeing the first signs of a bubble. There are some important take aways for the coming year. Investors must focus more on the India story and the fundamentals of the company. Investors must have a clear game plan to capitalize on the changing trends. That will be tough; but it can be done!