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Market Watch

Market Watch

Equity Market Overview May - 2025





Domestic Equity Market Update

  • Indian equities ended the month on a positive note. Large cap-oriented BSE Sensex ended higher by 1.51% (MoM) and Nifty 50 ended higher by 1.71% (MoM). While the BSE Midcap index ended higher by 5.25%(MoM), BSE Small cap index ended higher by 10.58% (MoM).
  • In terms of BSE sectoral indices, most of the sectors ended on a positive note. Capital Goods, Realty, Metal, IT and Auto were the gainers during the month.
  • During the month, FPIs were net buyers in equities to the tune of Rs 197 bn. (Data as on 29th May). 
  • Domestic equity markets ended the month on a positive note supported by optimism over India’s growth outlook and the RBI’s record Rs. 2.69 trillion dividend to the government. Strong inflows from foreign portfolio investors, US court decision to block most of the proposed tariffs, easing geopolitical tensions and softer inflation data supported the market further.

    ​​​​​​​Global Market Updates
  • US equites ended the month on a positive note mainly due to gains in technology stocks following the US President's decision on a tariff pause and stronger-than-expected US consumer confidence data. Additionally, softer inflation data and a rise in technology stocks driven by AI-related deals resulted in more gains.
  • European equity markets ended the month on a positive note buoyed by the US decision to delay tariffs on EU imports, opening the door for renewed negotiations. Investor sentiment was further supported by improved consumer confidence in Germany and easing inflation in France and due to ease of trade war concerns after the US-China agreement to temporarily lower tariffs.
  • Brent crude price declined from USD 63.12 per barrel to USD 62.78 per barrel as markets anticipated a potential output increase from OPEC+ members, with losses deepening amid growing concerns over oversupply. Furthermore, prices declined as investors reacted to conflicting signals from the US administration over China tariff talks and awaited China's measures to support its economy.

    ​​​​​​​Most of the Domestic Macro data points showed a strong picture
  • As per data from MoSPI, India’s Real Gross Domestic Product (GDP) growth for Q4 FY25 stood at 7.4% YoY higher than RBI’s forecast of 7.2% YoY. For the full FY25, Real GDP growth stood at 6.5% YoY, below RBI’s projection of 6.6% YoY. For the ongoing FY26, RBI has pegged GDP growth at 6.5% YoY.

  • According to data released by National Statistics Office (NSO), growth in industrial production fell to an eight-month low with the Index of Industrial Production (IIP) rising by 2.7% YoY in April 2025 from an upward revised figure of 3.94% YoY in March 2025, due to high base effect and a sequential decline registered in the output of the mining sector.
  • According to RBI data, credit card spends grew 18% YoY to Rs 1.84 trillion in April 2025, but were down 8.7% on a MoM basis due to a high base effect. Analysts expect credit card spends to remain stable in FY26, supported by growth in consumption. However, the net card additions are expected to remain range-bound.
  • As per RBI data, growth in currency in circulation is higher at 2.4% year-to-date up to May 2, 2025, compared with 1.7% in the same period of 2024, reflecting rural demand supported by farmgate prices of agricultural commodities. Total currency in circulation reached Rs 38.1 trillion, a significant portion of GDP.
  • As per data from the Ministry of Ports, Shipping and Waterways (MoPSW), India's major ports registered a 4.3% YoY rise in cargo handling to 855 mn tonnes in FY25.
  • According to ICRA, India's energy demand is expected to grow in the range of 6–6.5% CAGR over the next five-year period from FY26 to FY30. The growth in demand is attributable to the growing adoption of electric vehicles and green hydrogen segments, as well as the expansion of data centres.
  • According to Moody’s Ratings, India’s car sales are likely to grow at 3.5% CAGR, outpacing China, Japan and other major Asian economies, and reach around 5.1 mn units per year by the end of 2030. They estimate that if 9-10% of two-wheeler owners upgrade to entry-level cars, it would create replacement demand of at least 1.6-1.8 mn entry-level cars through 2030.
  • As per data from the Gem & Jewellery Export Promotion Council (GJEPC), India’s overall gross exports of gems and jewellery in April 2025 stood at USD 2,037.06 mn (Rs 174.28 bn), showing a decline of 4.62% YoY compared to USD 2,135.7 mn (Rs. 178.15 bn) in April 2024. On the other hand, the overall imports for April 2025 stood at USD 1,569.13 mn (Rs. 134.20 bn), showing a decline of 17.61% YoY.
  • As per latest sector performance data issued by the Telecom Regulatory Authority of India (Trai), consumer spending on mobile services (post-GST) increased 5.5% QoQ to about Rs 650.80 bn in Q3 FY25.
  • As per data released by industry body SIAM, passenger vehicle dispatch from factories to dealerships stood at 348,847 units in April 2025, which is an increase of 3.9% YoY over 335,629 units sold in April 2024.
  • According to S&P Global, the HSBC India Manufacturing Purchasing Managers' Index (PMI) improved to 58.2 in April 2025 from 58.1 in March 2025.
  • As per data from S&P Global, India’s Services Purchasing Managers' Index (PMI) for April 2025 rose to 58.7, signalling a slight growth in the country’s services.
  • According to market research firm Pharmarack, the Indian Pharmaceutical Market (IPM) grew 7.8% YoY in April 2025, with almost all major therapies showing positive value growth.
  • According to the market research firm NielsenIQ, demand growth for FMCG in rural India decelerated to 8.4% YoY in Q4 FY25, compared to 9.2% YoY growth in Q3 FY25 while Urban demand growth also moderated to 2.6% YoY in Q4 FY25, compared to 4.2% YoY in Q3 FY25. The FMCG industry had an overall growth of 11% YoY in Q4 FY25, driven by a 5.1% YoY increase in volume and 5.6% YoY increase in prices.

    ​​​​​​​Outlook & Investment Strategy
  • Going forward, the Indian equity market is likely to be driven by movement in the US Dollar index, improvement in consumption demand, FPI/DII flows, further negotiation on the 26% tariff imposed on India by the US, and strong liquidity support by the RBI. With improvement in liquidity and incremental money in the hands of the tax payers from the union budget, consumption and rate sensitive sectors is likely to improve. Anticipation of further rates cut on back of moderating inflation can further improve market sentiments. Lower oil prices have provided respite to the Indian economy by keeping the inflationary impulse low. Overall, the higher-than-expected pick-up in GDP growth momentum in H2 FY25 bodes well for the outlook for FY26 as well. Growth in the second half was supported by a rise in government capex and construction activity, healthy agriculture performance, and continued momentum in the service sector.

    The Q4FY25 earnings season has been steady after a weakish start, with stable performance by Large Banks, Chem and Fertilizer, Ecommerce, Healthcare, Telecom and Infrastructure companies. Realty, Auto and IT sector companies have seen muted to weak performance.

    The recent challenges and issues with the domestic macro economy and corporate earnings are expected see improvement in the next couple of quarters. With the rate of change in the GDP growth showing signs of improvement, decline in inflation and budgetary support to the middle class is likely to enhance the disposable income in the FY26. Beneficial trade deals, strong monsoons is likely to shore up sentiments going forward. With RBI going all out to support growth through a mix of policy rate cuts and liquidity improvement measures, the wheels of the economy are likely to move faster in the medium term. With the currency volatility also expected to get controlled due to decline in the dollar index, FPIs too could look at Indian markets more favourably, especially after the recent valuation correction. Thus, barring any large external risks, markets are expected to deliver lower volatility in the medium term.

    In terms of deployment strategy, we continue to maintain our investment deployment strategy of 50% Lumpsum and 50% staggered over the next 5-6 months. Fund managers who can pick out companies with superior growth prospects are likely to outperform vs pure value pickers in the medium term. Given the improved earnings performance delivered by the Midcap and few Smallcap sub sectors, exposure to pure Mid and Small cap funds could be taken through STPs. From asset allocation in Equity Mutual Fund perspective, investors could look at investing across Flexicap, Large and Midcap, Multicap, Hybrid equity, Business cycle funds and using STPs as an instrument to invest in Smallcap/Midcap funds; in line with their risk profile and product suitability from a 2-3 years’ time horizon.




Debt Market Overview May 2025






Domestic banking system liquidity was in surplus throughout the month. Banking system liquidity as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF) stood at a daily average surplus of ~Rs 1.69 trillion in May 2025 as against a daily average surplus of ~Rs 1.40 trillion in the previous month. The call money market traded in the range of ~5.40-5.85% during the month.

Domestic G-sec yields closed lower in May 2025, and the 10-year benchmark, 6.79% G-Sec 2034 bond, ended at 6.29%, compared to the previous month’s close of 6.36%. Indian G-sec yields initially rose as market participants sold existing holdings to accommodate the new benchmark 10-year paper, which the RBI was expected to issue in the coming days. Further, rising tensions with Pakistan unsettled investor sentiment and led market participants to offload holdings across the curve. However, losses were first neutralized following the RBI's announcement to purchase bonds worth Rs. 1.25 trillion in four tranches during the first three weeks of May 2025. Post this, yields started falling as the ceasefire agreement with Pakistan, along with favourable domestic inflation data for April 2025, strengthened expectations of further rate cuts by the RBI. Abundant liquidity in the banking system, along with optimism surrounding a higher-than-expected dividend transfer from the central bank to the Indian government, contributed to the gains. Towards the end of the month, market participants opted to book profits ahead of the RBI's policy meeting scheduled on 6th June 2025 which led to some of the gains being shed off.

The US Federal Reserve, decided to leave the target for the Federal Funds Rate at 4.25% to 4.50% for the third straight meeting. The Fed also acknowledged inflation remained somewhat elevated and warned of increasing risks of higher unemployment and higher inflation. According to the US Commerce Department, the US economy shrank by slightly less than previously estimated as the US Real Gross Domestic Product (GDP) edged down by a revised 0.2% QoQ (Annualized) in Q1 CY25 compared to the previously reported 0.3% QoQ dip reported for the same quarter. As per data from the US Commerce Department’s Census Bureau, the US trade deficit in goods contracted 46.0% MoM to USD 87.6 bn in April 2025 from a record USD 162.3 bn in March 2025. As per the US Labor Department, its Consumer Price Index (CPI) inched up by 2.3% YoY in April 2025 from 2.4% YoY in March 2025. The rate of growth by core consumer prices was unchanged from the previous month at 2.8% YoY. As per data from Eurostat, the Eurozone remained unchanged, as the harmonized index of consumer prices came in at 2.2% YoY in April 2025 as against the same number in March 2025. Core inflation, which excludes more volatile food, energy, alcohol and tobacco prices, accelerated to 2.7% from March’s 2.4%. The People’s Bank of China trimmed the 1-year loan prime rate to 3.0% from 3.1%, and the 5-year LPR to 3.5% from 3.6%. This was the first cut since October 2024.

Retail inflation in India eased further as the Consumer Price Inflation (CPI) Index came in at 3.16% YoY in April 2025 from 3.34% YoY in March 2025. India’s Wholesale Price Index (WPI) declined to a 13-month low of 0.85% YoY in April 2025 from 2.05% YoY in March 2025, on the back of a dip in the prices of food and fuel and power. As per data from the Controller General of Accounts (CGA), the government has marginally improved its fiscal deficit for FY25, bringing it down to 4.77% against the revised estimate (RE) of 4.84%. With the provisional estimate of Gross Domestic Product (GDP) for FY25 of Rs 330.68 trillion, showing an improvement over the RE of Rs 324.11 trillion, the fiscal deficit calculated as percentage of GDP has come down. Goods and Services Tax (GST) collection rose 16.4 % YoY to Rs 2.01 trillion in May against Rs 1.72 trillion during May 2024 and stayed above the 2 trillion mark for the second consecutive month about. After refunds, the net GST revenue for May stood at Rs 1.74 trillion, up 20.4% compared to Rs 1.44 trillion collected in May 2024. As per data from the Ministry of Commerce and Industry, India's merchandise trade deficit for April 2025 was USD 26.42 bn against USD 21.54 Bn in the previous month and compared with economists' forecast of USD 20 bn. While merchandise exports rose 9% YoY to $38.49 billion in April, goods imports increased 19% to $64.91 billion.

The liquidity condition, as measured by RBI’s net LAF, improved over the previous week and continued to remain in surplus. With higher than budgeted dividend declared by the RBI, liquidity is expected to ease further once the government starts spending the same. Retail inflation in India had eased further as the Consumer Price Index (CPI) fell to 3.16% YoY in April 2025 from 3.34% YoY in March 2025. Core inflation came in at 4.10% YoY in April 2025 as against 4.09% YoY in March 2025. The early onset of monsoon and expectations of above average rainfall as forecast by IMD can support food prices, resulting in muted headline inflation. Market participants expect the central bank to revise its inflation guidance lower than latest projection of 4% for FY26. The GDP growth for Q4 FY25 came in at 7.4% YoY, assuaging the fear of a slowdown in the interim. Going forward the growth-inflation dynamics will determine the pace of further policy actions by the RBI. Also, issues on the external front, in terms of rising trade deficit, geopolitics and risk related to US tariff wars continues to remain a key challenge for the RBI to negotiate with in the medium term and can have implication on the depth of the ongoing policy rate cut cycle. In the US, the Fed continued highlighting considerable uncertainty surrounding evolution of trade policies. The ongoing negotiation around trade tariffs will remain a key monitorable for capital flows and market sentiments.

G-sec yields seem to be capturing about 50 bps of policy rate cuts by the MPC in its next few policy meetings, thus, G-sec yields across the curve have seen substantial decline. Hence, incremental opportunity in long duration seems limited at this juncture. Easing liquidity conditions basis RBI measures has started normalizing the corporate bond yield curve at the shorter end. Further easing of liquidity may steepen corporate bond yield curve, making the case for investment into corporate bonds at the 1-4-years segment of the curve. Hence, investors can look at Corporate Bond Funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors may consider Income Plus Arbitrage FoF. For a horizon of 3 months and above, investors can consider Arbitrage Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors can also look at Multi-asset allocation funds for a horizon of 36 months and above. Investors should invest in line with their risk profile and product suitability.


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