The Month That Was: July 2025

Indian equity markets ended their four-month winning streak in July, with the Nifty 50 Index falling by 2.9%. Broader markets underperformed Nifty50 as mid-cap and small-cap indices declined by 4% and 6%, respectively. Sectoral performance was largely negative, with almost all sectors closing in the red. Healthcare and FMCG were the only gainers, rising by 3% and 2%, respectively, while IT, real estate, and capital goods witnessed steep declines of 9%, 7%, and 6%, respectively.

Globally, India was among the worst-performing markets during the month, alongside Brazil, the Philippines, and Malaysia. In contrast, Thailand, Indonesia, and Taiwan emerged as top gainers, posting strong returns of 14%, 8%, and 6%, respectively.

Sentiment remained cautious due to ongoing uncertainty around India-US trade negotiations and muted corporate earnings commentary for the quarter. Although Q1FY26 net income for the Nifty 50 Index have come broadly in line with expectations so far, conservative guidance from company management weighed on investor confidence. FIIs turned net sellers after three months of inflows, offloading USD 3.7 billion worth of Indian equities. DIIs, provided support, buying USD 6.3 billion during the month.

Key macro and policy developments included the signing of a Comprehensive Economic and Trade Agreement (CETA) between India and the UK, and the US maintaining interest rates while announcing a 25% minimum tariff on Indian exports. The IMF raised India’s FY2026 GDP growth projection to 6.4% from 6.2%. On the domestic economic front, June CPI inflation moderated to 2.1% from 2.8% in May, while WPI inflation turned negative at -0.1% year-on-year. IIP growth also decelerated to 1.2% in May from 2.6% in April.

Market Outlook

Markets have witnessed volatility over the last few weeks on the back of the lack of closure of trade deal between India and the USA. Despite the near-term volatility India's macro fundamentals remain intact. The moderation in inflation, steady domestic demand, improving rural economy and supportive interest rate policy environment continue to offer long-term investment opportunities. However, global trade tensions, particularly with the US, and muted corporate earnings guidance could lead to intermittent pressure on markets. Investor focus in the coming months will remain on the monsoon’s impact on rural consumption, developments on the global trade front, and further clarity on earnings outlook. A balanced portfolio strategy favouring defensives like FMCG and utilities, along with selective exposure to domestic cyclicals, may offer a prudent risk-reward opportunity in the current environment.

Happy Investing!