December 2025 – How sectors fared on returns, risk, and valuations

3 Jan 2026 , 11:19 AM

BIG PICTURE OF STOCK MARKETS IN DECEMBER 2025

How did the Indian stock markets perform in December 2025, in terms of generic, sectoral, and strategy indices? Here is a quick dekko.

• Let us start with generic indices for December 2025. The 1-month returns were negative across the board. The Nifty-50 closed December 2025 with losses of -0.28%. The only index in the positive was Nifty Next-50, up 0.33%. Mid-Cap Select fell -1.9%, while Nifty Microcap 250 was the worst performer, falling by -2.5% in December.
• What about thematic indices in December 2025? Positive performance was visible in Metals (8.5%), Oil & Gas (1.6%), and Autos (1.5%). Negative returns were seen in Consumer Durables (-3.0%), Realty (-2.8%), and Healthcare (-2.6%).
• Let us turn to strategy indices in December 2025? The strategies that outperformed were Value and Dividend Opportunities. Some of the strategy indices that lagged included Momentum and Quality.

Let us turn specifically to the sectoral indices and how they ranked in terms of returns, risk, and valuations.

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on key sectors with ranking on 1-year returns.

Sectoral Index	1-Year Returns	3-Year Returns	5-Year Returns
Nifty PSU Bank	31.33	26.37	38.55
Nifty Metal	29.90	19.13	29.73
Nifty FS Ex-Bank	28.16	24.83	17.81
Nifty Auto	24.59	31.81	26.30
Nifty Financial Services	18.60	14.43	13.65
Nifty Bank	18.08	12.44	14.61
Nifty Private Bank	16.55	10.29	11.41
Nifty Oil & Gas	15.25	14.11	18.95
Nifty Chemicals	8.22	7.79	17.40
Nifty FMCG	-0.43	9.76	12.28
Nifty Healthcare Index	-1.50	23.10	14.83
Nifty Pharma	-2.25	22.64	12.80
Nifty IT	-10.44	12.07	11.53
Nifty Consumer Durables	-11.75	13.74	13.50
Nifty Realty	-16.30	27.10	23.22
Nifty Media	-19.98	-9.67	-1.97

Data Source: NSE Indices

There are interesting takeaways from sectoral returns analysis

• Year 2025 has been a mixed year with only 9 out of 16 key sectors giving positive returns and 7 giving negative returns.
• However, if you take a 3-year or 5-year perspective, then all the 15 sectors, other than media, have given positive returns on CAGR basis.
• Sectors pertaining to financial services still dominate the returns story in 5 out of the 7 return leaders in the last 1 year. PSU banks have outperformed private banks.
• On the positive side, financials and autos benefited from the India story. In case of metals, it was more about metal prices being influenced by a likely recovery in China.
• On the downside, Realty and Consumer Durables saw stiff valuations unwinding. IT and Pharma corrected more due to vulnerability to the US markets.

Having seen returns, let us take a risk perspective of various sectoral indices.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Risk is the other side of the coin for investors.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty Realty	27.00	1.57	0.68	0.47
Nifty Media	22.87	0.94	0.48	0.24
Nifty Metal	22.48	1.40	0.74	0.54
Nifty PSU Bank	21.49	1.03	0.56	0.32
Nifty IT	21.12	1.18	0.66	0.43
Nifty Financial Services Ex-Bank	19.33	1.33	0.81	0.66
Nifty Consumer Durables	18.17	1.02	0.66	0.44
Nifty Auto	17.95	1.17	0.77	0.59
Nifty Oil & Gas	17.23	1.10	0.75	0.56
Nifty Chemicals	16.70	0.92	0.65	0.42
Nifty Pharma	16.09	0.84	0.61	0.38
Nifty Healthcare Index	15.37	0.86	0.66	0.44
Nifty Private Bank	13.43	0.95	0.84	0.70
Nifty Financial Services	13.42	1.01	0.88	0.78
Nifty FMCG	12.53	0.58	0.55	0.30
Nifty Bank	12.49	0.92	0.87	0.75

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation of returns) starting with the most volatile sectors to the least volatile sectors.

• The interplay between risk and returns has worked both ways. For instance, Metals, PSU Banks, Financial Services, and Autos have delivered high returns despite high volatility.
• On the other hand, sectors like Realty, Media, IT, and Consumer Durables have seen negative returns in the last one year amidst high volatility.
• A total of 9 out 16 sectors are aggressive sectors with Beta of more than 1 in the last 1 year. The remaining 7 are defence sectors with Beta of less than 1.
• R-Squared shows the extent to which the returns of the sector are explained by the Nifty movements. Lower the R-Squared, the better the sectors as a tool of diversification.
• In financial services, while private banks and NBFCs have a high R-Squared, PSU banks have a low R-Squared. Adding PSU banks to your portfolio in 2025 would have not only enhanced returns, but also diversified your portfolio due to low R-Squared.
• FMCG also has low R-Squared and makes a good diversification bet. However, in 2025, FMCG sector disappointed on returns.

Let us finally turn to the valuations of various sectors and how they stack up?

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Here, we look at sectoral valuations ranked on P/E ratios as of December 2025.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	61.25	11.52	0.40
Nifty Media	59.15	1.52	1.29
Nifty FMCG	40.74	10.01	2.00
Nifty Realty	40.46	4.25	0.34
Nifty Chemicals	39.51	4.28	0.61
Nifty Healthcare Index	36.72	5.46	0.57
Nifty Pharma	33.57	4.92	0.68
Nifty Auto	30.61	4.83	1.11
Nifty IT	26.65	7.04	2.96
Nifty Financial Services Ex-Bank	24.36	4.50	0.77
Nifty Private Bank	20.14	2.27	0.54
Nifty Metal	19.91	2.91	1.63
Nifty Financial Services	17.88	2.91	0.84
Nifty Bank	16.40	2.19	0.98
Nifty Oil & Gas	11.33	1.68	2.78
Nifty PSU Bank	8.75	1.40	2.19

Data Source: NSE Indices

Here are key takeaways from the valuation parameters.

• In terms of valuations (P/E) ratio, PSU banks are trading at just 8.75X earnings, despite the sharp rally in the latest year. Oil & Gas is the only other sector with P/E of 11.33X.
• Consumer Durables and Realty are posing tough choices for investors. The returns are low; they are not great diversifiers and also the valuations as measured by the P/E ratio are looking steep in comparison.
• The average P/E of these 16 sectors is 30.5X, which shows pressure of earnings not matching up to the growth in price.
• There are 4 sectors with dividend yield of more than 2%. They include; IT, Oil & Gas, PSU Banks, and FMCG. Post the recent rally, the dividend yield of metals has come down.

To sum up; PSU banks and metals have been the big positive stories of 2025. They have not only given attractive returns, but delivered these returns with modest volatility, attractive dividend yield and yet offering the opportunity to diversify the portfolio.

 

 

LLM Summary The month of December 2025 saw negative returns on almost all the generic indices. However, if you consider a 5-year time frame, the picture looks a lot more positive. December returns were driven by financials, auto, and metals. PSU banks emerged as the interesting sector of 2025. Apart from giving stellar returns in 2025 with low volatility levels, PSU banks also offer the additional advantage of high dividend yield and low R-Squared, which makes them smart diversification candidates. In terms of valuation, the average P/E ratio of the 16 key sectors stands at above 30X. That is well above the historical averages and is also evident in the Buffett Ratio going well above past averages to 130%. Despite the sharp rally in the last one year, sectors like PSU Banks, Oil & Gas and Metals continue to offer attractive dividend yield to investors.