The Month that was : May 2025
Indian equity markets extended their positive momentum in May, with Nifty50 Index rising by 1.7%, marking the third consecutive month of gains on the back of positive global cues on tariff front and revival in FII flows. Broader markets fared even better, with mid-cap and small-cap indices outperforming large caps, recording strong returns of 6.1% and 8.7%, respectively. Sectoral performance was largely positive, with almost all sectors ending in green, barring FMCG. Capital goods, real estate, and metal sectors led the rally, reflecting investor optimism around infrastructure and cyclical recovery.
Globally, equity markets maintained their upward bias, supported by improving sentiments. Germany, USA and Indonesia posted notable gains of over 6% during the month. Indian markets were initially under pressure in early May due to heightened geopolitical tensions with Pakistan. However, the situation stabilized after both countries agreed to a ceasefire, helping domestic equities recover. Mid-month, markets were buoyed by a breakthrough in trade talks between the US and China, which included an agreement to reduce tariffs on a temporary basis.
Moody’s downgraded the US sovereign credit rating, citing concerns over rising debt levels. RBI monetary policy committee front loaded rate cuts by reducing repo rate by 50bps to 5.5% in its June meeting. RBI also announced a significant surplus transfer of ₹2.7 trillion to the central government for FY2025, which is expected to support fiscal spending and investment activity.
Encouragingly, India's real GDP growth for the fourth quarter of FY2025 accelerated to 7.4%, up from 6.4% in the previous quarter, reflecting underlying strength in domestic demand. FIIs bought US$2.1 billion worth of equities during the month while DIIs were net buyers to the tune of US$7.9 billion.
Market Outlook
Despite early uncertainties stemming from geopolitical tensions and mixed global cues, Indian equities managed to end May on a firm note, supported by robust domestic fundamentals, resilient corporate earnings and strong institutional flows. The temporary easing in global trade tensions offered some relief, though concerns remain elevated due to unresolved issues around reciprocal tariffs and recent rating downgrade of USA. Amidst global uncertainties, India has a robust growth outlook as demonstrated by a strong GDP print for Q4FY25. Also, corporate earnings growth is expected to be robust giving support to equity markets.
Looking ahead, India continues to be positioned as a preferred investment destination, driven by strong macroeconomic indicators, expectations of a healthy monsoon, benign liquidity conditions in banking system and improved earnings visibility. While volatility may persist amidst global headwinds, sectors like capital goods, real estate, and industrials are expected to benefit from policy tailwinds and rising capex. A selective and quality-focused investment approach remains key in the current environment.
Happy Investing!
