Indian debt markets in December 2025 navigated a complex mix of supportive domestic policy actions and constraining external and supply-side pressures, resulting in a month of modest yield softening rather than a sustained rally. Government bond yields eased meaningfully through the middle of the month as the Reserve Bank of India stepped up liquidity support, but those gains were partly retraced toward month-end amid heavy borrowing supply, currency weakness and global rate headwinds. The benchmark 10-year government security yield began December near 6.85%, declined steadily as RBI interventions took effect, touched a low of around 6.54% on December 24, and then stabilized in the 6.60–6.61% range by the end of the month.
Despite the late-month uptick, yields finished December lower than they began, translating into positive returns for duration-sensitive bond funds, although the extent of gains remained capped. The RBI played a central role in shaping market dynamics during the month, delivering a 25 basis point repo rate cut to 5.25% and complementing it with large-scale liquidity measures, including open market operations (OMOs) totalling roughly ₹2 trillion in December alone and cumulative purchases exceeding ₹3 trillion for FY26, the highest on record. These bond purchases, focused largely on the 6–7 year segment such as the widely traded 6.33% 2035 bond, significantly eased systemic liquidity conditions and compressed term premiums, offering relief to a market that had been grappling with cash shortages stemming from currency in circulation outflows and RBI forex interventions. Additional support came from USD 5 billion buy/sell swaps, which injected durable rupee liquidity of ₹2–3 trillion and helped anchor overnight rates closer to the repo rate. At the shorter end of the curve, one-year government bond yields remained relatively stable in the 5.84–5.90% range, while overnight index swap (OIS) rates between 5.46% and 5.76% early in the month reflected intermittent liquidity tightness that gradually eased as RBI measures filtered through the system. Even with these actions, however, liquidity conditions were not unambiguously comfortable: surplus liquidity declined to around ₹3.3 trillion at times, and RBI infusions had to counter an estimated ₹1.5–2 trillion drain from strong credit demand and ongoing forex operations.
On the fiscal and supply side, persistent pressures limited the scope for a deeper rally in yields. The government’s borrowing program remained heavy, with record state development loan (SDL) issuances in the December quarter and a particularly large supply pipeline for Q4, which weighed on demand-supply dynamics even as OMOs absorbed some of the pressure. Concerns around fiscal slippage also lingered, driven by a combination of tax cuts, moderation in GST collections, and a high central government debt burden—estimated at over 60% of total market borrowings—which kept investors cautious about aggressively extending duration. Banks’ holdings of government securities fell to around 35.3% year-on-year, indicating some balance-sheet constraints, while pension funds showed signs of reallocating toward equities amid strong stock market performance, reducing a traditionally stable source of long-term demand.
Currency movements further complicated the picture, as the rupee depreciated sharply by nearly 2% during December, slipping to around 90.8 per US dollar amid heightened global risk aversion, US tariff announcements of up to 50% on certain trade fronts, and a firm dollar environment. This depreciation raised concerns about imported inflation and triggered bouts of foreign portfolio investor outflows from the debt market, contributing to intermittent yield hardening despite domestic easing. Inflation data at home remained benign, supported by falling food prices, favourable base effects and a decline of about 4.4% in global crude oil prices, but global inflation persistence and the risk of currency pass-through prevented markets from pricing in an aggressive or front-loaded easing cycle. Global factors continued to exert influence throughout the month, with US Treasury yields holding above 4%, limiting the relative attractiveness of Indian debt, while ongoing tightening bias in parts of Europe, China’s deflationary signals, and broader geopolitical uncertainties added to volatility. Strong domestic macro data also played a nuanced role: Q2 GDP growth of about 8.2% year-on-year led to upward revisions of FY26 growth expectations toward 7.2%, reinforcing confidence in the economy but simultaneously tempering expectations of sharp rate cuts and anchoring longer-term yields. As a result, while the RBI’s dovish stance and liquidity operations successfully stabilized the bond market and delivered moderate gains, especially in the belly of the curve, external headwinds, fiscal supply pressures and currency risks ensured that December 2025 remained a month of measured easing rather than a decisive bond rally, leaving the market balanced between supportive policy and persistent structural constraints heading into 2026.

The Indian rupee weakened sharply against the US dollar in December 2025, extending a year-long depreciation trend and emerging as Asia’s worst-performing major currency, though without signs of a balance-of-payments crisis. The month began with the rupee trading around ₹89.6–89.7 per dollar but quickly slipped under persistent pressure, breaching ₹90 in the first week, touching record lows near ₹90.49 by December 11, and briefly crossing ₹91 in mid-December before stabilising toward the end of the month in the ₹90.8–90.9 range. Overall, the rupee declined by about 2% during December alone and more than 5% on a year-to-date basis, significantly underperforming several Asian peers despite a broadly stable global dollar index. This sharp move reflected a convergence of domestic imbalances and external shocks rather than a single trigger.
A major driver was sustained foreign portfolio investor outflows, with FPIs selling over $1.6 billion of Indian equities and debt during December and cumulative equity outflows exceeding ₹1.48 lakh crore for the year, as investors rotated toward safer dollar assets amid global uncertainty, elevated US yields and concerns over Indian asset valuations. These flows translated directly into higher dollar demand as funds were repatriated, intensifying pressure on both spot and forward currency markets. Trade-related concerns compounded the problem, as stalled US–India trade negotiations and aggressive tariff hikes by the US—reportedly up to 50% on key Indian exports such as textiles, pharmaceuticals and electronics—eroded confidence in India’s external earnings outlook and threatened export competitiveness. These fears came on top of a widening trade deficit, with weak global demand dragging exports lower while imports surged due to higher purchases of gold, crude oil and capital goods, forcing corporates and refiners to front-load dollar buying. Currency market dynamics were further amplified by heavy importer hedging and stress in the offshore non-deliverable forward (NDF) market, which pushed up forward premia and magnified each bout of risk aversion.
Against this backdrop, the Reserve Bank of India adopted a consciously measured approach, intervening selectively to smooth volatility rather than defending any specific level. While the RBI reportedly sold dollars intermittently—drawing down reserves but keeping them at comfortable levels—it allowed the rupee to act as a “shock absorber,” consistent with its growth-supportive stance following a 25-basis-point rate cut and the IMF’s classification of India’s regime as a managed, crawl-like arrangement. This policy tolerance of gradual depreciation helped prevent panic but also meant that external pressures were reflected more fully in the exchange rate.
Market reactions to the weaker rupee were contained rather than disorderly: bond yields firmed slightly as currency risk and current-account concerns lifted term premia, equities faced intermittent foreign selling even as domestic investors provided support, and the real economy confronted near-term headwinds from imported inflation and costlier foreign borrowing. At the same time, some analysts noted that a weaker rupee could partially offset tariff damage by improving export price competitiveness over time. By late December, the breach of the psychologically important ₹90 level was widely interpreted not as a crisis signal but as a policy-tolerated reset driven by trade shocks, capital outflows and global risk aversion, leaving the rupee stabilised but vulnerable heading into 2026 until clarity emerges on tariffs, portfolio flows and global monetary conditions

Crude oil prices weakened further in December 2025, extending a year of pronounced declines as oversupply concerns and soft global demand continued to dominate market sentiment. West Texas Intermediate (WTI) crude opened the month near USD 59.5 per barrel and drifted steadily lower, falling into the high-USD 50s by mid-December and ending the month in the USD 56.5–57.9 range, before slipping to around USD 57.3 in early January 2026. On a monthly basis, WTI lost roughly 2–3%, capping a full-year decline of more than 20% from highs above USD 80 seen earlier in 2025. Brent crude followed a similar trajectory, easing from early-December averages near USD 61–62 per barrel to around USD 60.7 by end-month, down just over 3% in December and marking its fifth consecutive monthly fall. Although intra-month volatility remained elevated, with sharp swings driven by inventory data and geopolitical headlines, the broader trend was decisively downward asmarkets increasingly priced in a sizeable supply surplus for 2026.
The primary driver of December’s weakness was persistent oversupply. OPEC+ producers, including Russia, continued to pump at elevated levels despite nominal quotas, while non-OPEC supply—particularly from the US—remained resilient. Even when US crude inventories showed occasional draws, such as a roughly 4.8 million barrel decline reported mid-month, product inventories told a different story: gasoline and diesel stocks continued to build, signalling weak refining margins and subdued end-user demand. This reinforced the view that supply was outpacing consumption, limiting the market’s ability to sustain any meaningful rebound. On the demand side, global consumption growth disappointed. Manufacturing activity in major economies, including China and parts of Asia, remained sluggish, freight volumes softened, and industrial energy usage stayed muted, outweighing seasonal or festive demand. Forward-looking forecasts increasingly pointed to a structural glut in 2026, as non-OPEC supply growth was expected to exceed incremental demand even under optimistic growth assumptions.
Geopolitical risks, which had supported prices earlier in the year, proved insufficient to offset these fundamentals. While ongoing Russia–Ukraine tensions, sporadic attacks on energy infrastructure, and uncertainty around sanctions on producers like Venezuela injected brief risk premiums into prices, these moves were short-lived. Markets increasingly judged that geopolitical developments were unlikely to result in sustained, large-scale supply disruptions, especially with diplomatic channels open and spare capacity available elsewhere. At the same time, macroeconomic conditions added another layer of caution. A firm US dollar, with the dollar index holding above 108, made oil more expensive for non-US consumers, while lingering hawkishness from the US Federal Reserve and concerns about a global growth slowdown capped investor appetite for commodities
For India, the December decline in crude prices was broadly constructive. Brent crude around USD 60–61 per barrel helped contain the oil import bill, supported the current account, and eased inflationary pressures despite higher import volumes. Lower energy costs also reduced fiscal stress linked to fuel subsidies and input costs for downstream industries. However, the underlying reason for lower prices—weak global demand—also carried negative implications, particularly for India’s export outlook and global trade momentum. Overall, December 2025 reinforced the view that oil markets were transitioning into a lower-price regime, with prices likely to remain range-bound in the USD 55–75 per barrel zone into 2026 unless disrupted by a major supply shock or an unexpectedly strong rebound in global growth.

Gold and silver prices in India remained elevated through most of December 2025, supported by a mix of global safe-haven demand, currency effects and central bank buying, before correcting sharply in the final days of the month as profit-taking and year-end rebalancing set in. Domestic 24K gold traded comfortably above the ₹14,000 per gram mark for much of the last week of December, touching highs near ₹14,242 per gram on December 27–29, but momentum faded quickly thereafter. Prices fell to around ₹13,620 on December 30 and settled near ₹13,588 by December 31, marking a steep decline of about 4.5% in the final stretch of the month. Correspondingly, 22K gold ended December near ₹12,455 per gram and 18K around ₹10,191. Silver followed a similar pattern, rising earlier in the month on safe-haven inflows before softening toward the end as risk appetite improved in equities and speculative positions were unwound
The late-month correction was primarily driven by aggressive profit-booking after a strong rally. Gold had posted substantial gains earlier in the year, leaving prices technically overbought, with momentum indicators such as the relative strength index moving above 70. This prompted traders and investors to lock in profits, especially as the calendar year drew to a close. In India, physical demand also tapered after the Diwali and wedding-season peak, reducing support from jewellery buying and encouraging dealers and investors to offload holdings as part of tax planning and portfolio rebalancing. Similar dynamics were visible globally, where COMEX data showed speculators trimming long positions after year-to-date gains of more than 25%, reinforcing the downward pressure into month-end. Despite the correction, gold’s broader tone in December remained resilient, underpinned by geopolitical and macroeconomic uncertainties. Early in the month, heightened tensions in the Middle East, continued risks around the Russia–Ukraine conflict, and intermittent friction involving Venezuela and US sanctions injected a risk premium into bullion prices, briefly pushing global spot gold above USD 4,400 per ounce. These developments supported safe-haven flows into gold-backed ETFs and sustained central bank interest. Global spot prices, while volatile, still ended December up around 3% on a monthly basis, easing from late-month highs to about USD 4,330 per ounce by early January 2026.
Currency movements played a critical role in shaping domestic prices. The sharp depreciation of the Indian rupee toward ₹90.8 per US dollar amplified local gold prices through most of December, effectively adding an import premium even when global prices softened. This currency effect helped insulate Indian gold prices from sharper declines earlier in the month. However, strength in the US dollar, with the dollar index holding above 108, capped international gains and eventually contributed to the late-month pullback in ounce-denominated prices. Falling crude oil prices helped ease import costs but were insufficient to offset the combined impact of profit-taking and stronger dollar dynamics. Central bank buying remained a structural support. Ongoing purchases by the RBI and other major central banks, including China, reinforced gold’s role as a long-term store of value amid de-dollarization trends and geopolitical uncertainty, even as short-term momentum faded. Overall, December 2025 for gold and silver was characterized by a classic pattern of early resilience followed by a sharp technical correction, leaving bullion prices lower at the margin but still elevated in a broader historical and strategic context heading into 2026.

In December 2025, India’s mutual fund industry navigated a mixed but resilient environment, shaped by equity market volatility, structural shifts in investor behaviour and a few high-profile industry developments. A key highlight was the ICICI Prudential AMC IPO, which opened between December 12 and 16 and raised about ₹10,602 crore, drawing strong investor interest and underscoring confidence in the long-term growth of the asset management business. The listing brought renewed visibility to the sector at a time when industry assets under management (AUM) were hovering around ₹80–82 lakh crore, supported more by mark-to-market gains than by aggressive net inflows. Despite intermittent FII outflows and market consolidation, retail participation remained stable, with SIP inflows staying robust at over ₹29,000 crore for the month, pushing annual SIP collections beyond ₹3 trillion for the first time and reinforcing the stickiness of domestic flows At the same time, fund houses adjusted portfolios cautiously. Cash holdings, which had been pared by nearly ₹7,000 crore earlier during market rallies, remained elevated on a year-to-date basis at around ₹2.01 lakh crore, reflecting a preference for liquidity and selective deployment. New fund offer (NFO) collections continued to disappoint, with year-to-date mobilisation falling to about ₹63,600 crore by November, weighed down by tighter SEBI regulations, fewer thematic launches and subdued investor appetite amid volatile equity conditions. This led to a slowdown in new investor additions, which stood at roughly 5.8 million, and shifted fund-house focus away from NFOs toward established schemes.
Flow trends across segments highlighted this recalibration. Equity mutual funds saw moderated net inflows, largely SIP-driven, with flexi-cap and mid-/small-cap categories attracting interest even as lump-sum investments stayed cautious. Debt schemes experienced net outflows of around ₹8,400 crore, reflecting liquidity needs and cautious corporate treasuries. In contrast, hybrid funds recorded healthy inflows near ₹12,000 crore, driven by demand for arbitrage and multi-asset strategies, while passive funds continued to gain share, with AUM exceeding ₹14 lakh crore, supported by steady inflows into gold and silver ETFs. Overall, December reflected a mutual fund industry that remained structurally strong, supported by disciplined retail participation, even as near-term flows adjusted to market volatility and regulatory changes.