September 2025 Market Commentary
September month witnessed escalation in U.S. protectionist moves, as a onetime charge of USD 100,000 was imposed on fresh H-1B visa applications, affecting Indian technology companies, followed by tariffs on branded pharma exports. Amid strained trade relations with the U.S., the revised GST rate structure came into force ahead of the festive season, significantly reducing prices of autos, processed foods, personal care items, cement, air conditioners, hotels etc. Equity markets ended the month up 0.6% and sectors like Autos, Metals and Oil & Gas were the top gainers for the month while the key laggards were Technology, FMCG and Consumer Durables. FIIs remained cautious in September, continuing their equity sell-off but at a slower pace. There was a net outflow of USD 2.7 billion from Indian equities in September, compared to the larger outflows of USD 3.3 billion in August and USD 2.9 billion in July.
India high frequency growth indicators point to a modest pickup in activity in September, supported by income tax cuts, monetary easing, and GST rate reductions. Consumer demand uptick was clearly visible in autos, post the tax cuts, as 2-wheeler and Personal vehicle registrations surged by 35% during the Navratri festival. The agriculture sector remains strong following a good monsoon as seen in strong tractor sales and rising sowing area for the Kharif crop, though heavy rains in some parts may impact production of key crops and lead to higher food inflation in perishables. Steel production, MSME credit, and GST e-way bill activity indicate steady industrial and logistical momentum amid ongoing Government capital expenditure.
Headline CPI inflation rose to 2.1% YoY in August, largely due to higher gold prices, while core inflation stayed steady at 4.1%. Excluding gold and silver, inflation remained subdued at 3.1%, below RBI target of 4%. The RBI’s October Monetary Policy meeting lowered inflation forecasts for FY26 to 2.6% from 3.1% earlier. GDP growth for the April–June quarter (Q1 FY2025-26) came in at 7.8% YoY, beating market expectations and marking an acceleration from 6.1% in the previous quarter. However GDP growth projections were revised downward for Q3/Q4 FY26 to 6.4% and 6.2% from earlier projection of 6.6% and 6.3% respectively reflecting evolving economic conditions and global uncertainties.
The RBI held policy rates steady and maintained a neutral stance, noting that inflation is tracking below earlier estimates post-GST cuts and should remain near target in the next fiscal year. The MPC acknowledged room for future easing but preferred to wait and assess the effects of recent fiscal and monetary measures. Two external members recommended shifting the stance to accommodative. The benchmark 10 year G Sec yield has traded between 6.50% - 6.60% with heavy supply from States keeping the long tenure spreads elevated. Corporate bond spreads remained elevated across tenures.
The first half of September saw a recovery in the domestic equity market, spurred by the GST rationalization induced price cuts and the resultant demand increase. However, the sentiment turned negative post the announcement of trade measures on Technology and Pharma sectors from the US. Equity markets are expected to track 1) Progress on US trade deal negotiations, 2) Revival of the earnings growth cycle, which is likely to start from Q3FY26 onwards, 3) Revival in a credit growth cycle, and 4) Transmission of fiscal and monetary benefits into consumption growth. US Fed rate cuts over the next few months are expected to keep sentiment buoyant.
