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Market Watch

Market Watch

Equity Market Overview August 2025





Domestic Equity Market Update

  • Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex ended lower by 1.69% (MoM) and Nifty 50 ended lower by 1.38% (MoM). While the BSE Midcap index ended lower by 2.49%(MoM) and BSE Small cap index ended lower by 3.70% (MoM).
  • In terms of BSE sectoral indices, most of the sectors ended on a negative note. Oil & Gas, Realty and Power were the laggards during the month.
  • During the month, FPIs were net sellers in equities to the tune of Rs 288 bn. (Data as on 28th August). 
  • Domestic equity markets ended the month on a negative note as steep US tariffs up to 50% on Indian goods weighed on sentiment, leading to investor caution regarding the economic fallout, sustained foreign fund outflows and lacklustre Q1 FY26 earnings.

    Global Market Updates
  • US equity markets ended the month on a positive note after July’s CPI rose by 0.2% in line with expectations, easing inflation concerns and upbeat corporate earnings which fuelled optimism over a potential Federal Reserve rate cut. Federal Reserve Chair’s highly anticipated speech and the outlook for monetary policy at the Jackson Hole Economic Symposium also boosted investor confidence that the Fed may lower interest rate.
  • European equity markets ended on a mixed note with support from strong corporate earnings and on expectations of a rate cut by the US Federal Reserve and easing trade tensions. However, markets witnessed volatility weighed down by geopolitical concerns stemming from escalating clashes in Gaza and Ukraine, as well as political uncertainty in France.
  • Brent oil prices corrected from USD 72.53 per barrel to USD 67.43 as concerns over a potential OPEC+ output increase and the US President’s comments on talks with Russia have raised doubts over new sanctions. Trade policy threats also heightened concerns over global tech tensions and digital tax disputes, potentially impacting the US economic and energy outlook. Additionally, prices fell amid worries that the unofficial end of the summer driving season could reduce demand.

    Most of the Domestic Macro data points showed a strong picture
  • According to various economists, the US’ move to raise the tariff on most Indian goods to 50% could drag India’s GDP growth for FY26 by 35 to 60 bps.
  • As per Boston Consulting Group (BCG) India, India's proposed Free Trade Agreement (FTA) with the European Union could unlock access to a USD 875 bn market and bring tariff parity with ASEAN peers as the country navigates a critical juncture in the evolving global trade landscape.
  • As per estimates released by MoSPI, India’s Gross Domestic Product (GDP) grew 7.8% YoY in Q1 FY26, hitting a five-quarter high. During Q1 FY25, GDP growth stood at 6.5% YoY.
  • According to Moody’s Ratings, India's GDP growth is likely to slow down by about 30 bps to 6% YoY in FY26 if the US implements 50% tariffs from August 27, 2025.
  • Fitch Ratings affirmed India’s rating at “BBB-” with a stable outlook on the back of robust growth and solid external finances.
  • Fitch Ratings, in its India Corporates Credit Trends Report, cut India's GDP projections for FY26 to 6.3% YoY, down from their earlier projection of 6.4% YoY in April 2025.
  • According to ICRA, the Indian economy is expected to grow at 6.7% YoY in Q1 FY26, higher than 6.5% YoY growth registered in Q1 FY25.
  • According to ratings agency CareEdge, container volume growth in FY26 is estimated to moderate by 100-150 bps and log an 8% YoY growth at around 380 mn metric tonnes.
  • As per India Ratings and Research, banks’ credit growth is expected to climb up to 13% YoY in FY26, but added that higher tariffs, if they indeed come about, may impact the number.
  • According to a Deloitte–FICCI report, the Indian retail sector is projected to nearly double to USD 1.93 trillion by 2030 from USD 1.06 trillion in 2024, growing at a CAGR of 10%.
  • According to NSO data, growth in industrial production rose to a four-month high of 3.5% YoY in July 2025 from 1.5% YoY in June 2025.
  • As per RBI data, sales of listed private Non-Financial Companies grew at a slower pace of 5.5% YoY in Q1 FY26 compared to 6.9% YoY in Q1 FY25.
  • According to NSO data, India’s unemployment rate in Q1 FY26 stood at 5.4%, showed the first ever quarterly Periodic Labour Force Survey (PLFS).
  • According to the latest CAG report, the Central Government's Debt-to-Gross Domestic Product (GDP) ratio eased between FY22 and FY24 but its interest payments increased during this period.
  • As per RBI’s annual survey of foreign assets and liabilities of mutual funds, Indian mutual funds' overseas assets dropped 5.6% YoY to USD 8.3 bn in FY25.
  • As per data released by the Ministry of Commerce and Industry, output growth in India’s eight core infrastructure industries fell to a two-month low of 2% YoY in July 2025.
  • The Centre has proposed a two-tier GST with 5% and 18% slabs, along with a 40% slab for a few items in the sin goods category. The removal of the Compensation Cess will coincide with the rationalised and reduced rates.
  • As per NPCI data, Unified Payments Interface (UPI) transactions reached 19.47 bn in July 2025, up 6% MoM. The transactions were worth Rs 25.08 trillion, a 4% MoM increase in value.
  • According to Govt. data, India’s net revenues from Goods and Services Tax (GST) grew by a marginal 1.7% YoY in July 2025 to Rs 1.68 trillion.
  • As per quick estimates released by the Ministry of Commerce and Industry, India’s merchandise trade deficit widened to an eight-month high of USD 27.35 bn as imports picked up 8.6% YoY.
  • According to NSE’s Market Pulse Report, the share of new investors under the age of 30 has risen in the first four months of FY26, reaching 56.2%, up from 53.2% in FY25.
  • Flash survey results from S&P Global showed that the HSBC flash composite output index rose to 65.2 in August 2025 from 61.1 in July 2025. India's private sector activity expanded at the fastest pace on record amid sharp growth in new orders.
  • As per AMFI data, net inflows into Equity Mutual Fund (MF) schemes scaled a record high in July 2025 as active equity schemes raked in a net Rs 427.02 bn during the month.

    Outlook & Investment Strategy
  • Going forward, the Indian equity market is likely to be driven by any moves around India-US trade deals, movement in the US Dollar index, improvement in consumption demand post the proposed GST slab rationalisation, FPI/DII flows, and strong liquidity support by the RBI. The US President Donald Trump has imposed about 50% tariff on India, including penalty due to India’s trade relations with Russia which has led to volatility in sector exposed to US. There is still expectation of better trade deals that can come about in due course. The proposed GST rate rationalisation may support sectors that could be adversely impacted due to tariffs and act as a tailwind to the overall domestic consumption going ahead. The Fed Chair’s remarks at the Jackson Hole Symposium hinted at the possibility of a softening in their stance which could improve liquidity in the US markets, bring the dollar index down, which, in turn, could direct flows towards Emerging Markets. Overall, the Q1 FY26 GDP numbers beat the expectations with 7.8% YoY growth on the back of low inflation, strong central and state capex along with signs of pickup in private consumption which could sustain going forward due to a lower base and contained inflation, while a lot will also depend on how US tariffs play out along with the impact of GST rate rationalisation.
  • Quarterly earnings for Q1 FY26, have been mostly in line with expectations, but expectations too had been toned down. Notably, small caps have been a laggard. There is a possibility that consumers could postpone their spending in anticipation of lower prices due to GST cuts, which could dent the Q2 FY26 earnings. Benefits of RBI’s policy measures is likely to be visible in the next couple of quarters. Companies linked to rural India have been able to deliver improved performance. As per fund managers, Luxury and Consumer Tech Platform companies have been able to deliver on topline growth, but urban middle-class driven segments and roads and railways driven sectors have/are likely to see weakness. For Banks, after a very strong performance on the credit costs front over last few quarters, the credit costs seem to be rising/normalising especially in MSME, SME and personal loans space.
  • With a low base, any pickup in consumption demand due to GST rationalisation, or further meaningful support provided by the RBI could help drive superior earning performance which is likely to also ensure better equity market performance.

With rich valuations, incoming US tariff related weakness and continued weakness in the urban demand, the Indian equity markets seem to be in consolidation mode post the recent up-move. Consumption which forms the largest part of the GDP, is likely to get boost once the new GST slabs come about. Strong monsoons and continued support from the RBI should keep growth buoyant. If further support comes about, or if tariffs get renegotiated, or we get favourable tariffs with EU (negotiations ongoing) the markets are likely to take that positively. Currently, the markets are getting narrower and opportunities seem to be available in the set of stocks which have been able to deliver incrementally better revenue/earnings growth. Also, with no specific sector showing broad-based and continued momentum, fund managers who are able to be fairly nimble and identify growth ideas could generate alpha vs their peers.
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In terms of deployment strategy, we are cautiously optimistic to maintain our investment deployment strategy of 50% Lumpsum and 50% staggered over the next 5-6 months, as Indian macros still remain amongst the best in the world and any near-term volatility could be used by investors to add to their exposures. Fund managers who can pick out companies with superior growth prospects are likely to outperform vs pure value pickers in the medium-term. On allocations 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 August 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 2.78 trillion in August 2025 as against a daily average surplus of ~Rs 3.04 trillion in the previous month. The call money market traded in the range of ~4.80-5.45% during the month.

Domestic G-sec yields closed higher in August 2025, and the 10-year benchmark, 6.33% G-Sec 2035 bond, ended at 6.57% compared to the previous month’s close of 6.37%. Indian G-sec yields rose as the RBI kept rates unchanged, opting for a wait-and-watch approach to assess the impact of earlier rate cuts on the economy, contrary to market expectations of a dovish tone or further easing. Yields rose further after the Indian Prime Minister announced sweeping changes to the Goods and Services Tax (GST) regime, reigniting fiscal concerns and heightening fears of increased debt supply. Some of the losses were capped during the month after S&P upgraded India’s sovereign credit rating to ‘BBB’ from ‘BBB-’.


According to revised data from the US Commerce Department, the Real Gross Domestic Product of US rose by 3.3% YoY in Q2 CY25 as compared to the previously reported 3.0% YoY surge for the quarter. Economists had expected the jump in GDP to be upwardly revised to 3.1% YoY for the quarter. As per data from the US Commerce Department, the US Personal Consumption Expenditures (PCE) price index growth in July 2025 came in unchanged from June 2025 at 2.6% YoY, in line with estimates. The Core PCE price index ticked up to 2.9% YoY in July 2025 from 2.8% YoY in June 2025, matching estimates. According to Eurostat data, the Euro area Gross Domestic Product (GDP) grew 0.1% QoQ during Q2 CY25, after rising 0.6% QoQ in Q1 CY25. As per final data from Eurostat, Eurozone inflation remained unchanged in July 2025, in line with the European Central Bank's 2% target, as the Harmonized Index of Consumer Prices rose 2.0% YoY in July 2025, the same as seen in June 2025. Core inflation also remained stable at 2.3% YoY in July 2025. The People's Bank of China left its one-year loan prime rate unchanged at 3.0%. Similarly, the five-year LPR, the benchmark for mortgage rates, was retained at 3.50%.

As per estimates released by MoSPI, India’s Gross Domestic Product (GDP) grew 7.8% YoY in Q1 FY26, hitting a five-quarter high. During Q1 FY25, GDP growth stood at 6.5% YoY. The latest estimates are above RBI’s projection of 6.5% YoY for Q1 FY26. As per data from the Ministry of Commerce and Industry, India’s Wholesale Price Index (WPI) fell 0.6% YoY in July 2025, compared with a 0.1% YoY fall in June 2025, driven by a decline in food and fuel prices. As per the Ministry of Commerce and Industry, India’s merchandise trade deficit widened to USD 27.35 bn in July 2025 as imports picked up 8.6% YoY to USD 64.6 bn. Goods exports rose 7.3% YoY to USD 37.24 bn. According to the Controller General of Accounts (CGA), the Centre’s Fiscal Deficit for April-July of FY26 expanded to 29.9% of the Budget Estimates (BE) comparable to Rs 4.7 trillion from Rs 2.8 trillion or 17.2% of BE for the April-July of FY25. The net tax revenue stood at 23.3% of BE in April-July of FY26, compared to 27.7% in the corresponding period of FY25. A meeting of the Group of Ministers (GoM) on GST rate rationalisation agreed to the Centre’s proposal to restructure the indirect tax system to replace the current four-rate structure of 5%, 12%, 18%, and 28% with two rates — 5% and 18%. A higher 40% levy will remain on a small list of sin goods. As per data released by the CBDT, Net Direct Tax collection contracted nearly 4% YoY to about Rs 6.63 trillion as on August 11, 2025, due to a 21.2% YoY surge in corporation tax refunds.

The liquidity condition, as measured by RBI’s net LAF, weakened over the previous month, but remained comfortably in surplus. RBI continued using Variable Rate Reverse Repo (VRRR) auctions to absorb excess liquidity and align call money rate with the Repo rate. The RBI had kept policy rates unchanged in its latest MPC on 6th August 2025, moving to a ‘wait-and-watch’ approach while continuing with their neutral stance. The RBI also revised their inflation outlook for FY26 downward to 3.1% from 3.7% projected earlier on the back of benign inflation outlook, while keeping growth projection same as earlier at 6.5%. Retail inflation in India eased further as the Consumer Price Index (CPI) fell to 1.55% YoY in July 2025 from 2.10% YoY in June 2025. As per MoSPI, India’s Gross Domestic Product (GDP) grew by 7.8% YoY in Q1 FY26, above RBI’s projection of 6.5% YoY. Going forward, the growth-inflation dynamics will continue to determine the necessity of further policy actions by the RBI. For now, positive developments around both have given RBI enough space and flexibility to wait and watch before easing policy further. The development around changes in GST cut will be watched in terms of the fiscal impact it creates, which may drive near term volatility in the bond market. Once the details are out, the bond market is likely to take a more nuanced position. In the US, Fed Chair Jerome Powell gave subtle hints towards rate cuts in his Jackson Hole Speech. Going forward, developments around a Bi-lateral Trade Agreement with the US and Fed’s policy decisions are expected to remain key driving factors for market sentiments and capital flows.

The high term spreads at the longer end have created tactical opportunities in Dynamic bond funds and Gilt funds which have positioned their portfolio to take advantage of the same. The spread at the shorter end of the Corporate Bond yield curve continues to remain at lucrative levels against G-secs. Liquidity is expected to remain comfortable, and the curve may steepen further. Thus, a case continues to exist for investment into corporate bond funds that are at the 1-4-year 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 or consider Dynamic Bond Funds and Gilt Funds for tactical opportunity. For a horizon of 3 months and above, investors can consider Arbitrage Funds and Money Market 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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