The ₹75 Trillion Question: Panic Or Opportunity?

Despite a Union Budget that boosted market sentiment with a formula for spurring consumption while fortifying fiscal credibility, Indian markets continue to lag. Over ₹75 trillion in equity wealth has evaporated since September’s peak — that’s equal to 23% of India’s nominal GDP for 2024-2025, exposing vulnerabilities beneath the surface of macroeconomic resilience. For perspective, ₹70 trillion is around 23% of India’s 2024-2025 nominal GDP and little more than the total market capitalisation of all BSE-listed stocks in December 2013!

The Perfect Storm 

Markets aren’t just jittery — they are caught in a three-way tug-of-war: geopolitical volatility, FII selling, which is leading to weakness in the rupee, and weak corporate growth. Mr. Trump’s tariff threats loom large, and with proposals to hike duty on import of steel and aluminium from all countries, the question now is — will Indian drugmakers also get caught in the crossfire? 

The second factor: FIIs have offloaded over ₹1 trillion in 2025 so far, and we are not even past mid-February. In just three sessions since the Reserve Bank of India’s rate cut, the street has eroded ₹13 trillion of market cap. The central bank’s “neutral” monetary policy stance, while prudent, has left markets questioning whether this rate cut is the start of a sustained easing cycle or mere caution.  

Domestic liquidity pressure adds to the uncertainty. Retail investors and high net-worth individuals, who now hold a record 10% of NSE-listed market capitalisation, face a wealth erosion shock. The ₹75 trillion loss is little more than the total market cap of BSE-listed companies in 2013. That’s a staggering decline that risks dampening consumption in sectors such as real estate, autos, and durables. Corporate performance also offers little solace: Q3 2024-25 revenue and profit growth of 7% and 6% YoY, respectively, lag nominal GDP growth of nearly 10%. These headwinds could keep markets under pressure for another few months.

Cautious Optimism 

However, this gloom need not persist. Structural tailwinds—from softening oil prices to robust GDP projections—suggest a turning point by 2025-26. Brent Crude’s 9% monthly drop, coupled with potential deflationary pressures from US protectionism, could ease India’s import bill and stabilise the Rupee. The RBI forecasts inflation to average at 4% from Q2 of 2025-26, a target supported by expectations of robust crop output. With GDP growth set to outpace major economies at over 6.5%, India’s premium valuation as compared to peers, may find justification. 

Valuations, too, hint at latent potential. The Sensex and Nifty now trade below 10-year average P/E ratios after a 10% correction from their peak, while small- and mid-caps have seen sharper repricing. This recalibration of multiples could attract value-driven inflows — especially as retail participation defies turmoil. Last week alone saw over 6 lakh new investor registrations, continuing a historic 12-month surge that added 47.7 million investors. For context, it took BSE over a century to achieve that milestone! This democratisation of equity culture provides a buffer against FII flight.

Road Ahead 

What remains is for policymakers to recognise equity markets as both economic barometers and growth catalysts. While the Budget prioritised taxpayers and the RBI eased borrowing costs, 200 million equity investors were left wanting for more.  

At 130% of GDP, India’s market capitalisation reflects an economy increasingly intertwined with equity fortunes, and history offers a template. The 2013 taper tantrum and the 2020 COVID-led selloff, both gave way to bull runs as structural strengths outweighed transient shocks. Today’s challenges — though multifaceted — are no more insurmountable. Global oil trends, monsoon patterns, and the RBI’s inflation battle will dictate short-term swings, but India’s growth narrative remains intact. As US protectionism potentially backfires for their economy, stifling consumer spending and growth in the quarters to come, India’s domestic-driven model could regain favour. 

The next 12 months may test resolve with the markets likely to be weak till March 2025 due to US tariff moves, FII selling and weakening of the rupee. But green shoots of recovery are visible: reasonable valuations, India’s famous demographic dividend, and policy-making that gets attuned to market realities.