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Market Watch

Market Watch

Equity Market Overview July - 2025




Domestic Equity Market Update

  • Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex ended lower by 2.90% (MoM) and Nifty 50 ended lower by 2.93% (MoM). While the BSE Midcap index ended lower by 2.29 %(MoM) and BSE Small cap index ended lower by 2.31 % (MoM). 
  • In terms of BSE sectoral indices, most of the sectors ended on a negative note. IT, Realty and Capital Goods were the laggards during the month.
  • During the month, FPIs were net sellers in equities to the tune of Rs 186 bn. (Data as on 30th July). 
  • Domestic equity markets ended the month on a negative note as US President Donald Trump imposed a 25% tariff on India along with an additional unspecified penalty for buying oil and defense equipment from Russia. The markets also got impacted by weak earnings, persistent foreign fund outflows, global slowdown and raising fears of inflation.


Global Market Updates

  • US equites ended the month on a positive note amid optimism over a potential US-European Union trade deal, upbeat retail sales data for June and stronger-than-expected earnings reports of major corporations. Latest PCE inflation data too boosted Fed rate cut hopes. Additionally, a trade deal between the US and Vietnam, and stronger-than-expected jobs data for June led to gains.
  • European equity markets ended on a positive note. Gains were supported by the region’s central bank maintaining interest rates, reflecting easing inflation trends. Investor sentiment were also improved amid expectations of a US–EU trade agreement and owing to strong quarterly results from major corporations. However, sharp selling was seen in European markets as investors assessed the potential economic impact of fresh US levies on dozens of countries, including a 39% rate on Switzerland.
  • Brent oil prices rose from USD 67.61 per barrel to USD 71.70 supported by EIA data indicating strong gasoline demand. Additionally, prices rose further, buoyed by robust seasonal demand, persistent geopolitical risks in the Middle East and on demand optimism over US trade deals and Iran’s nuclear halt.

Most of the Domestic Macro data points showed a strong picture

  • US President Donald Trump announced a 25% tariff on exports from India starting August 1, 2025 along with an unspecified penalty to be imposed for India’s defence and energy procurements from Russia. This may have a significant adverse impact on India’s shipments to its largest market that accounts for about a fifth of its exports.
  • According to CGA, the Centre's Fiscal Deficit in Q1 FY26 rose to 17.9% of the annual target, compared with 8.4% in Q1 FY25, as the capital expenditure surged 52% YoY to Rs 2.75 trillion and revenue spending rose 20% YoY to Rs 9.47 trillion during the quarter. Net tax revenues, however, dropped 2% YoY to Rs 5.40 trillion, although non-tax revenues jumped 33% YoY to Rs 3.73 trillion aided by a record Rs 2.69 trillion dividend transfer by RBI.
  • According to Worldpanel by Numerator (formerly Kantar Worldpanel), in Q1 FY26, urban demand in volume grew at 4% YoY, slower than in Q4 FY25 where it grew at 4.4% YoY. Rural demand grew 3.2% YoY, which was higher than the demand seen in Q4 FY25 at 2.7% YoY.
  • According to National Statistical Office (NSO) data, India’s Industrial Production (IIP) growth eased to a ten-month low of 1.5% YoY in June 2025, slightly better than 1.2% YoY (Quick Estimate) in the month of May 2025, primarily on the back of a sharp contraction in mining and electricity output. The growth rates of the three sectors, Mining, Manufacturing and Electricity for the month of June 2025 stood at 8.7% YoY, 3.9% YoY and -2.6% YoY respectively.
  • According to government data, the Goods and Services Tax (GST) collection in June 2025 amounted to Rs 1.85 trillion, reflecting a 6.2% YoY rise.
  • According to data released by the MoSPI, India registered subdued industrial activity with the Index of Industrial Production (IIP) growing 1.2% YoY in May 2025, dipping lower than the 2.7% YoY recorded in April 2025.
  • The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 58.4 in June 2025 from 57.6 in May 2025.
  • According to official data, power consumption in India dipped slightly by 1.5% YoY to 150.04 bn units (BU) in June 2025, mainly due to reduced usage of cooling appliances amid early onset of monsoon.
  • As per S&P Global, the seasonally adjusted HSBC India Services PMI rose to 60.4 in June 2025 from 58.8 in May 2025.
  • As per the CGA, the government’s capex witnessed an increase of 54% YoY in the April-May 2025. Revenue-wise, the government has seen a growth of 10% YoY in tax and 41.8% YoY in non-tax revenues due to RBI dividends.
  • According to the RBI's composite Reserve Bank of India - Digital Payments Index (RBI-DPI), Digital Payments across the country registered a 10.7% YoY rise as on March 2025. The index for March 2025 stands at 493.22 as against 465.33 for September 2024 and 445.5 for March 2024.
  • According to RBI Governor, Sanjay Malhotra, with data showing a steep decline in price rise in June 2025, the outlook on inflation and growth will determine future rate cuts, making it clear that the current data will not influence the trajectory. He also stated that the RBI's rate cuts will not lead to asset bubbles and added that the central bank has more ammunition in its arsenal beyond rate cuts to help the economy.
  • The Asian Development Bank (ADB) has revised downwards India’s GDP growth forecast for FY26 to 6.5% YoY from the earlier 6.7% YoY in its July 2025 forecast, primarily due to the effects of US tariff policies.
  • According to economists polled by Reuters, the Indian economy was forecast to expand 6.4% YoY in FY26, the June 2025 poll of 51 economists found. Growth was forecast to pick up modestly to 6.7% YoY in FY27.
  • According to CII President Rajiv Memani, the Indian economy is expected to grow by 6.4-6.7% YoY during FY26 driven by strong domestic demand, even as geopolitical uncertainty poses downside risks.
  • According to RBI Monetary Policy Committee (MPC) member, Nagesh Kumar, the Indian economy is growing at a robust pace and will not face any challenge in achieving a growth rate upwards of 6.5% YoY in FY26. As the Indian economy is more driven by domestic consumption and domestic investment, less by export or trade, he said it continues to grow very robustly.
  • As per the World Bank, India would need an estimated investment of USD 2.4 trillion by 2050 and USD 10.9 trillion by 2070 to meet the urban infrastructure requirements of an estimated 951 mn urban population by 2050, with a critical role to be played by the private sector.
  • According to data released by the Ministry of Commerce and Industry, India’s core infrastructure sector grew to a three-month high of 1.7% YoY in June 2025, up from 1.2% YoY.
  • According to vessel tracking data from global commodity market analytics firm Kpler, India's import of crude oil from Russia rose to an 11-month high in June 2025 as refiners topped up tanks amid the Israel-Iran war. India imported 2.08 mn barrels per day (bpd) of Russian crude in June 2025, the highest since July 2024.
  • As per CMIE, more than half of all new project announcements in Q1 FY26 came from the manufacturing sector. Manufacturing projects worth around Rs. 2.3 trillion were announced in the three-month period, accounting for 54% of total new projects.
  • A recent Kantar report revealed that in FY25, unbranded products recorded 8.4% YoY volume growth in cities, compared to just 2.3% YoY in rural India. Urban households, influenced by inflationary pressures and a growing trend of online product discovery, are leaning more towards unbranded goods.
  • According to a report by real estate analytics firm PropEquity, Tier 2 cities such as Indore, Nagpur and Surat have outpaced big cities as realtors launched nearly 470,000 residential plots, with an estimated launch value of approximately Rs 2.44 trillion, across the top 10 tier 1 and tier 2 cities between 2022 and May 2025.
  • According to a statement from the Society of Indian Automobile Manufacturers (Siam), automakers delivered 312,849 units to dealerships in June 2025, marking a 7.4% YoY decline.
  • According to industry body SIAM, automobile exports from India rose 22% YoY in Q1 FY26 driven by record shipment of passenger vehicles and robust growth in segments like two-wheelers and commercial vehicles.
  • According to FADA, India’s Electric Vehicle (EV) market registered a 28.60% YoY increase in total sales in June 2025. FADA President CS Vigneshwar credited the growth to government schemes, especially the PM e-Drive Scheme, and increased investments in domestic EV innovation.
  • As per AMFI, the net inflow into equity mutual funds surged 24% MoM to Rs 235.87 bn in June 2025, reversing the declining trend of the last five months. Whereas, debt funds registered a net outflow of Rs 17.11 bn in the month under review compared to a Rs 159.08 bn outflow in May 2025.
  • According to a report by rating agency ICRA, retail mortgage-backed loans offered by Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) are expected to reach Rs 20 trillion by FY28, from Rs 13 trillion as of FY25.
  • As per ICRA, a USD 10 per barrel increase in crude oil prices would increase India's oil import bill by about USD 13-14 bn. India imported crude worth USD 137 bn in FY25.
  • According to a report by rating agency CRISIL, India’s 18 largest states, accounting for over 90% of the country’s Gross State Domestic Product (GSDP), are likely to record a marginal uptick in revenue growth of 7–9% YoY in FY26, compared to the 6.6% YoY growth seen in FY25.
  • According to Crisil Intelligence, the Indian two-wheeler industry is witnessing a ride towards the premium segment, like other consumer sectors in the country, with the market share of premium motorcycles increasing to 19% in FY25 and expected to touch 22% by 2030.

Outlook & Investment Strategy

  • Going forward, the Indian equity market is likely to be driven by movement in the US Dollar index, Q1 FY26 earnings, improvement in consumption demand, geo politics, FPI/DII flows, and strong liquidity support by the RBI. 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. Receding tensions in the Middle East and a sharp correction in global crude oil prices have provided respite to the Indian Markets. Market participants have taken the India-UK Free Trade Agreement positively and are waiting for US trade deal to assess its impacts on companies.

  • The recent challenges and issues with the domestic macro economy and corporate earnings are already starting to see improvement and are expected improve further in the next couple of quarters. With a favourable base, the earnings are likely to see steady growth in FY26. With the rate of change in the GDP growth showing signs of improvement, decline in inflation, and budgetary support to the middle class, disposable incomes are likely to improve in FY26. Beneficial trade deals and strong monsoons are 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. In near term trade deal with US is likely to be an important variable which can drive both market sentiments and currency strength.
  • Though the valuations continue to remain rich, the equity markets may choose to ignore them if the earnings growth remains reasonable and liquidity remains abundant, thus creating opportunities in stocks which can demonstrate strong earnings growth. We are already seeing gradual narrowing of the markets, so fund managers who are able to be fairly nimble and identify growth ideas can generate alpha vs their peers.
  • 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 an asset allocation perspective in Equity Mutual Funds, 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 June 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 3.04 trillion in July 2025 as against a daily average surplus of ~Rs 2.74 trillion in the previous month. The call money market traded in the range of ~4.50-5.75% during the month.

Domestic G-sec yields closed higher in June 2025, and the 10-year benchmark, 6.33% G-Sec 2035 bond, ended at 6.37%, compared to the previous month’s close of 6.32%. Indian G-sec yields rose, in response to an increase in US Treasury yields. Yields rose further as the banking system's liquidity surplus narrowed due to tax outflows and following hawkish remarks from the RBI Governor, which dampened investor appetite for debt securities.

The US Federal Reserve announced its widely expected decision to leave interest rates unchanged. The Fed maintained the target range for the Federal Funds Rate at 4.25-4.50%. Real Gross Domestic product (GDP) increased at an annual rate of 3.0% QoQ in Q2 CY25, according to the advance estimate released by the US Bureau of Economic Analysis. In Q1 CY25, real GDP decreased by an annualized 0.5% QoQ. The Bureau of Labor Statistics reported that the Consumer Price Index increased 0.3% MoM, putting the 12-month inflation rate at 2.7% YoY. Excluding volatile food and energy prices, core inflation picked up 0.2% MoM for an annual rate of 2.9% YoY, with the annual rate in line with estimates. According to Eurostat, in Q2 CY25, seasonally adjusted GDP increased by 0.1% QoQ in the Euro area following a growth of 0.6% QoQ in Q1 CY25. The Governing Council, led by ECB President Christine Lagarde, kept the deposit rate unchanged at 2.00%. The refinancing rate was retained at 2.15% and the marginal lending rate at 2.40%. The decision was in line with expectations, as policymakers assessed that price pressures continue to ease, but acknowledged that the economic environment remains highly uncertain mainly due to the trade tariff wars. According to Eurostat, the Euro area inflation rate was 2.0% YoY in June 2025, up from 1.9% YoY in May 2025. A year earlier, the rate was 2.5% YoY. The PBOC maintained its interest rates unchanged as the economy faces subdued domestic demand amid challenging global economic conditions. The bank retained its one-year Loan Prime Rate (LPR) at 3.0%. Similarly, the five-year LPR, the benchmark for mortgage rates, was kept unchanged at 3.50%.

Retail inflation in India eased further as the Consumer Price Index (CPI) inflation came in at 2.16% YoY in June 2025 from 2.82% YoY in May 2025. According to the data released by the Commerce and Industry ministry, Wholesale Price Index (WPI) inflation dipped to -0.13% YoY in June 2025, from 0.39% YoY in May 2025, marking the first negative reading since the beginning of 2025. The drop was largely driven by deflationary trends in food articles, fuel and power, and basic metals. India's trade deficit narrowed to USD 18.78 bn in June 2025 compared to USD 21.88 bn in May 2025, according to data released by the government. Merchandise exports in June 2025 were recorded at USD 35.14 bn, nearly flat from USD 35.16 bn in the same month last year. On the import side, the country saw a 3.71% YoY decline, totalling to USD 53.92 bn. The central government's fiscal deficit stood at 17.9% of the full-year target at the end of June 2025, according to data released by the Controller General of Accounts (CGA). It was at 8.4% of Budget Estimates (BE) in the first three months of the previous financial year.

The liquidity condition, as measured by RBI’s net LAF stayed substantially in surplus. Hence, the RBI has been conducting VRRR auction to absorb excess liquidity and align call money rate with the Repo rate. Retail inflation in India eased further as the Consumer Price Index (CPI) fell to 2.10% YoY in June 2025 from 2.82% YoY in May 2025, The RBI had front loaded policy easing in its latest MPC in June 2025 to support growth. Going forward, the growth-inflation dynamics will continue to determine the necessity of further policy actions by the RBI. However, the latest statement from RBI governor indicated that despite decelerating inflation, due to the lag with which monetary policy works, they may need to wait further before moving the needle of policy rates downward. The recent announcement made by US president Donald Trump about imposing higher than expected tariff has added to interim volatility, hence, going forward, any further development on that front is expected to remain a key driving factor for the market sentiments and capital flows.

At this juncture, long duration bonds continue to have limited scope for incremental gains unless the central bank considers further growth-supportive policy easing in future policy meetings basis their updated outlook on growth-inflation dynamics. The spread at the shorter end of the Corporate Bond yield curve has narrowed marginally over G-secs during the last month. Based on easing liquidity, 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. Also, as a tactical opportunity Dynamic Bond Funds can be considered. 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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