Market Update
Equity
Nifty 50 returns fell 1.4% MoM in August, as geopolitical headwinds remain strong, with crude prices remaining elevated at ~93USD/bbl through the month. However, broader market performance was stronger with midcap/smallcap returns growing 1.1%/3.0% MoM. Over the last 12 months, largecaps have dipped 1%, underperforming midcaps (+15% YoY) and smallcaps (+16% YoY). Sector-wise performance diverged, with strong returns in metals / discretionary, offset by weakness in staples / utilities. IT services, a laggard over the last year, continued the strong run with another positive month. August saw steady FII inflows of USD 2.4 bn, continuing the positive trend seen in July. Inflows were consistent, with net inflows on 14 of 19 trading days. Steady inflows meant FII outflows in 12M rolling terms slowed sharply to USD26bn (-0.5% of market cap). Additionally, USD5.5bn DII inflows remain supported by steady SIP and insurance flows. The 1QFY27 corporate earnings season concluded on a strong note, demonstrating widespread outperformance across all key aggregates. The earnings growth and beat were led by Financials, Metals, Oil & Gas (ex OMCs), and Automobiles as well as sectors such as Chemicals, Textiles, and Real Estate.
The Nifty 50 has largely remained flat over the past one year, weighed down by persistent geopolitical headwinds, relative valuation concerns and sustained FII selling, particularly in index heavyweights. In contrast, select pockets of the SMID segment have continued to deliver strong earnings growth, driving the Midcap and Small cap indices to new all-time highs. With the pace of earnings growth strengthening and the breadth of growth improving, we expect the risk reward profile to become increasingly favourable, enhancing India’s attractiveness from an FII perspective. Volatility in crude prices and its impact on India’s economic growth remains the key risk in the near-term. In our view, the economic bill of sustained supply disruptions directly threatens US domestic fuel prices, inflation expectations, and political stability. Consequently, Washington's rational path leans toward reducing war aims and negotiating reciprocal de-escalation, as sheer destructive capability cannot guarantee stable energy markets or safe commercial shipping routes. Thus we expect this to be a transient issue from the equity perspective, the resolution of which, will lead to an upmove in the equity markets.
Better-than-expected 1QFY27 corporate earnings, broad-based earnings upgrades, resilient macro fundamentals, moderating valuations, improved liquidity conditions and a stable currency continue to reinforce the strength of India’s investment case across both the primary and secondary markets. A broad-based pick-up in credit growth, the lagged transmission of GST cuts, personal income-tax reductions, a revival in corporate capex, and a healthy rural economy are together supporting a recovery in consumption and investment.
Fixed Income
Global markets have undergone a significant hawkish repricing, with markets assigning ~90% probability to a September Fed rate hike and pricing nearly four RBI hikes over the next 12 months. The repricing is being driven by a combination of higher commodity prices and concerns around global fiscal dynamics. Brent has moved above US$100/bbl, up ~15% MoM and ~50% YoY, while the Bloomberg Commodity Index is up ~40% YoY, led by energy, wheat, copper and aluminium. At the same time, elevated US fiscal issuance is coinciding with weaker incremental foreign demand for Treasuries, with Japan, China and Norges Bank reducing UST exposure. The broader global shift towards strategic self-sufficiency and deglobalisation is also resulting in higher fiscal spending and global debt supply, with 8 of 9 developed-market central banks expected to be in a rate-hiking cycle by year-end.
The Indian growth-inflation mix, however, remains relatively resilient. Q1 FY27 GDP growth surprised positively at 7.8% versus market expectations of ~7.5%, led by investment, while the ~US$127 billion FCNR mobilisation provides an important cushion against FX pressures and supports domestic bond-market liquidity. Inflationary pressures have nevertheless started to broaden: August CPI increased to 4.8% from 4.5% in July, with core inflation at 4.2% and super-core inflation (core excluding precious metals) at 2.8%, suggesting that the inflation trajectory warrants closer monitoring even as the initial shock remains substantially supply-driven. This creates a narrower policy window for the RBI, particularly if elevated crude and commodity prices begin to feed into broader core inflation expectations.
Our near-term fixed-income outlook remains anchored around the US–Iran conflict as the key swing factor. Given the current repricing, we expect the repo rate to move towards ~6%, with three hikes potentially beginning as early as October/December. A significant part of the rate-hike risk appears already priced at the short end (≤3 years) and ultra-long end (20 years+), while corporate bond spreads at ~six-year highs provide an attractive opportunity to lock in elevated carry. Accordingly, we favour high-quality credit and carry/roll-down strategies, with selective duration deployment as the rate-hike cycle becomes better priced and visibility on crude and inflation improves.
Equity
Nifty 50 returns fell 1.4% MoM in August, as geopolitical headwinds remain strong, with crude prices remaining elevated at ~93USD/bbl through the month. However, broader market performance was stronger with midcap/smallcap returns growing 1.1%/3.0% MoM. Over the last 12 months, largecaps have dipped 1%, underperforming midcaps (+15% YoY) and smallcaps (+16% YoY). Sector-wise performance diverged, with strong returns in metals / discretionary, offset by weakness in staples / utilities. IT services, a laggard over the last year, continued the strong run with another positive month. August saw steady FII inflows of USD 2.4 bn, continuing the positive trend seen in July. Inflows were consistent, with net inflows on 14 of 19 trading days. Steady inflows meant FII outflows in 12M rolling terms slowed sharply to USD26bn (-0.5% of market cap). Additionally, USD5.5bn DII inflows remain supported by steady SIP and insurance flows. The 1QFY27 corporate earnings season concluded on a strong note, demonstrating widespread outperformance across all key aggregates. The earnings growth and beat were led by Financials, Metals, Oil & Gas (ex OMCs), and Automobiles as well as sectors such as Chemicals, Textiles, and Real Estate.
The Nifty 50 has largely remained flat over the past one year, weighed down by persistent geopolitical headwinds, relative valuation concerns and sustained FII selling, particularly in index heavyweights. In contrast, select pockets of the SMID segment have continued to deliver strong earnings growth, driving the Midcap and Small cap indices to new all-time highs. With the pace of earnings growth strengthening and the breadth of growth improving, we expect the risk reward profile to become increasingly favourable, enhancing India’s attractiveness from an FII perspective. Volatility in crude prices and its impact on India’s economic growth remains the key risk in the near-term. In our view, the economic bill of sustained supply disruptions directly threatens US domestic fuel prices, inflation expectations, and political stability. Consequently, Washington's rational path leans toward reducing war aims and negotiating reciprocal de-escalation, as sheer destructive capability cannot guarantee stable energy markets or safe commercial shipping routes. Thus we expect this to be a transient issue from the equity perspective, the resolution of which, will lead to an upmove in the equity markets.
Better-than-expected 1QFY27 corporate earnings, broad-based earnings upgrades, resilient macro fundamentals, moderating valuations, improved liquidity conditions and a stable currency continue to reinforce the strength of India’s investment case across both the primary and secondary markets. A broad-based pick-up in credit growth, the lagged transmission of GST cuts, personal income-tax reductions, a revival in corporate capex, and a healthy rural economy are together supporting a recovery in consumption and investment.
Fixed Income
Global markets have undergone a significant hawkish repricing, with markets assigning ~90% probability to a September Fed rate hike and pricing nearly four RBI hikes over the next 12 months. The repricing is being driven by a combination of higher commodity prices and concerns around global fiscal dynamics. Brent has moved above US$100/bbl, up ~15% MoM and ~50% YoY, while the Bloomberg Commodity Index is up ~40% YoY, led by energy, wheat, copper and aluminium. At the same time, elevated US fiscal issuance is coinciding with weaker incremental foreign demand for Treasuries, with Japan, China and Norges Bank reducing UST exposure. The broader global shift towards strategic self-sufficiency and deglobalisation is also resulting in higher fiscal spending and global debt supply, with 8 of 9 developed-market central banks expected to be in a rate-hiking cycle by year-end.
The Indian growth-inflation mix, however, remains relatively resilient. Q1 FY27 GDP growth surprised positively at 7.8% versus market expectations of ~7.5%, led by investment, while the ~US$127 billion FCNR mobilisation provides an important cushion against FX pressures and supports domestic bond-market liquidity. Inflationary pressures have nevertheless started to broaden: August CPI increased to 4.8% from 4.5% in July, with core inflation at 4.2% and super-core inflation (core excluding precious metals) at 2.8%, suggesting that the inflation trajectory warrants closer monitoring even as the initial shock remains substantially supply-driven. This creates a narrower policy window for the RBI, particularly if elevated crude and commodity prices begin to feed into broader core inflation expectations.
Our near-term fixed-income outlook remains anchored around the US–Iran conflict as the key swing factor. Given the current repricing, we expect the repo rate to move towards ~6%, with three hikes potentially beginning as early as October/December. A significant part of the rate-hike risk appears already priced at the short end (≤3 years) and ultra-long end (20 years+), while corporate bond spreads at ~six-year highs provide an attractive opportunity to lock in elevated carry. Accordingly, we favour high-quality credit and carry/roll-down strategies, with selective duration deployment as the rate-hike cycle becomes better priced and visibility on crude and inflation improves.
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