Market Update

The brief recovery in domestic equity markets came to a halt in the month of July as both the benchmark indices, the Sensex and the Nifty 50, lost ~3% each at the end of the month. The primary reason for the fall was the worsening of trade ties between the US and India as the negotiations did not seem to make any headway. Agriculture & dairy products was one sector, which proved to be a deadlock as India remained steadfast in defence of domestic dairy farmers. This raised fears of the August 1st deadline being missed, leading to sharp selling in the market. IT once again was the biggest underperformer in terms of sectors, accompanied by Realty and Telecom while Healthcare, FMCG and Consumer Durables were the best performing sectors. FIIs sold significantly to the tune of USD 2bn. 

The HSBC India Composite PMI came in at 61.0 in July 2025, unchanged from the previous month but above the flash estimate of 60.7. It was the highest reading since April 2024, underpinned by robust services activity, which saw its fastest expansion in 11 months, and manufacturing growth that reached a near 18-month high. New orders rose at the quickest pace since April 2024, though employment growth slipped to a 15-month low.

Retail CPI eased to an eight-year low of 1.6% in July 2025, dropping below the 3% mark for the third consecutive month.  On annual basis, double-digit decline in prices of vegetable (21%) and pulses’ (14%) along with high base led to lower CPI in July 2025. On the contrary, Oil & fats and fruits reported double digit growth at 20% and 14%, respectively. Core CPI inflation moderated to 3.1% vs 3.5% in the previous month. July WPI inflation came in at -0.58% YoY vs. -0.13% YoY in June-25, the lowest in 24 months, due to notable decline in food (led by vegetables) and fuel segments. 

Bond yields rose in response to an uptick in U.S. Treasury yields and a narrowing liquidity surplus in the domestic banking system, driven by tax outflows. The upward movement in yields was further reinforced as market participants scaled back expectations of a near-term rate cut. This shift in sentiment followed hawkish commentary from the central bank, which emphasized that future monetary policy decisions would be guided more by forward-looking assessments of growth and inflation rather than their current levels. Yield on the 10-year benchmark paper (6.33% GS 2035) rose by 6 bps to close at 6.38%, compared with the previous month’s close of 6.32%. Corporate bond spreads displayed mixed trends across different maturities. 

The first half of August has once again been volatile for the Indian equities market, after the US levied a shocking 50% tariff on India. After the initial announcement of 25%, the US Govt levied a secondary 25% tariff after penalizing India for continuously purchasing Russian oil. The impact of this has been dampened slightly by a solid 1QFY26 earnings season, barring financials, as well as an announcement of potential rationalization of the GST structure by October this year. India also received a sovereign ratings upgrade from BBB- to BBB from S&P, which would also act as a boost for the overall investment sentiment.

Regards,

Investment team