India's market capitalization achieved a remarkable 9 percent increase in December, the highest among the world’s top ten equity markets. This performance marks its strongest surge in over three years and comes after four consecutive months of decline.

With this rebound, India’s total market cap now stands at $4.93 trillion, according to Bloomberg. The gain of 9.4 percent, its largest since May 2021, was primarily driven by a revival in foreign investor activity, following substantial outflows in October and November.

Foreign investors have infused around $2.37 billion into Indian equities in December so far, reversing the trend of net outflows of $11.2 billion in October and $2.57 billion in November. However, domestic indices showed mixed results. While the benchmark Sensex and Nifty declined by 1.7 percent each, the BSE MidCap index rose by 0.5 percent, and the BSE SmallCap index recorded a marginal dip of 0.3 percent.

Globally, India’s performance stood out amid a largely subdued market environment. The United States, the largest equity market with a market capitalization of $63.37 trillion, registered a 0.42 percent decline, its first after seven months of consecutive gains.

China, the second-largest market with a midcap of $10.17 trillion, saw a fall of 0.55 percent, marking its fifth consecutive month of market cap contraction. Japan’s market, valued at $6.28 trillion, recorded a 2.89 percent decline, while Hong Kong, ranked fourth globally at $5.57 trillion, achieved a 4.13 percent increase.

Other major markets faced notable declines. Canada's midcap experienced a sharp drop of 5.56 percent, the United Kingdom fell by 2.84 percent, and Germany and Switzerland posted declines of 1.22 percent and 4.02 percent, respectively. Australia and South Korea witnessed even steeper falls of 6.6 percent and 4.8 percent.

In contrast, France, Saudi Arabia, and Taiwan registered gains of 0.2 percent, 2.42 percent, and 3.3 percent, respectively.

India’s midcap outperformance comes despite global volatility driven by concerns over potential tariff wars following the US presidential elections, expectations of fewer rate cuts by the US Federal Reserve, and geopolitical tensions. Domestic market challenges included weaker corporate earnings, slowing economic growth, tighter liquidity, delayed government spending, and persistent inflationary pressures, which dampened investor sentiment earlier in the year.

Looking ahead, experts believe India will remain relatively insulated from global shocks, such as a potential trade war between the US and China. While the country’s long-term structural growth story remains intact, GDP growth is forecast to decelerate to 6.3 percent in 2025 due to fiscal consolidation and slower credit growth resulting from the Reserve Bank of India’s macro-prudential tightening.

Analysts have also delayed their forecast for rate cuts by the RBI, expecting easing to begin in the first quarter of 2025, with cumulative reductions capped at 50 basis points by mid-year. Despite the anticipated rate cuts, macro-prudential conditions are likely to keep retail loan growth subdued, even in a lower interest rate environment, believe analysts.