Supply: Bloomberg knowledge as on seventeenth June’25
This rally comes within the face of two vital headwinds: unrest in Iran and Israel, and issues over US fiscal stability. But, international rates of interest as much as 10 years have remained largely secure, with India standing out as a consequence of a notable decline in each short- and long-term yields.
The resilience of markets means that traders are trying past short-term dangers and specializing in structural progress tales.
World tailwinds and India’s outperformance
A significant catalyst for international sentiment has been US President Donald Trump’s determination to pause reciprocal tariffs and resume commerce talks with the UK and China. This transfer has eased commerce tensions and boosted investor confidence throughout markets.India has emerged as a standout performer on this surroundings. Over the previous three months, Indian equities have outpaced international friends, supported by a sequence of presidency reforms, central financial institution interventions, and a strengthening rupee. These elements have created a beneficial macroeconomic backdrop that traders are more and more recognizing.
Home drivers: Liquidity, capex, and coverage assist
India’s market resilience is underpinned by a number of key developments:
1. Capex revival
After a subdued interval from April to November 2024, the Indian authorities considerably ramped up capital expenditure. March 2025 noticed a document ₹2.4 trillion in capex—the best ever in a single month and 25% greater than the overall spent in FY2014. This surge displays a renewed dedication to infrastructure improvement and long-term progress.
2. Banking liquidity and price cuts
The Reserve Financial institution of India (RBI) has injected ₹6–7 trillion into the monetary system by way of USD/INR swaps, CRR cuts, OMOs, and long-term repo auctions. This has reworked a ₹3 trillion liquidity deficit right into a ₹6 trillion surplus. A 50-basis level price minimize has narrowed the India–U.S. 10-year bond yield unfold from over 500 bps 5 years in the past to underneath 190 bps at present. These measures are anticipated to assist credit score progress and stimulate funding.
3. Return of international institutional traders (FIIs)
After $28.7 billion in web outflows between October 2024 and March 2025, FIIs have returned with $2.4 billion in inflows throughout April and Might. With FII possession at a decade-low of ~16%, there may be vital room for additional upside. A secure rupee and bettering macro indicators are drawing international traders again to Indian markets.
4. Earnings momentum
Company earnings for Q4FY2025 have exceeded expectations, with 7–8% year-on-year progress in each income and revenue. Earnings downgrades for FY2026 have been restricted, and analysts anticipate a optimistic inflection within the coming quarters.
One can argue the regular Indian’ financial progress price, its robust steadiness sheet, falling inflation and secure earnings progress surroundings have all made a case for discount of Indian’s fairness danger premium and will assist inflows.
Challenges to watch
1. Slowing consumption
Retail consumption progress has dropped from 28–29% in mid-2024 to beneath 9%. This slowdown raises issues about demand sustainability and credit score high quality. To counter this, the federal government introduced 3–5% tax cuts for middle-income earners (₹15–25 lakh), anticipated to spice up disposable revenue and revive client spending by Q3FY2026.
2. Valuation issues
Markets are close to peak valuations. The massive-cap index is buying and selling at a five-year ahead P/E of 20x, whereas mid-caps and small-caps are at premiums of 30% and 15% respectively. These elevated valuations recommend that traders ought to undertake a extra selective and tactical method to fairness allocation.
Tactical alternatives forward
India’s macroeconomic surroundings is bettering, supported by foreign exchange stability, ample liquidity, and a revival in capital expenditure. Nonetheless, elevated valuations and international geopolitical dangers stay key variables that might affect market route.
On this context, traders might contemplate specializing in sectors and themes that provide structural progress and are well-positioned to profit from present tendencies:
Consumption: Poised to rebound post-tax cuts, particularly in discretionary and FMCG segments.
Financials: Notably housing finance and capital markets, which stand to realize from elevated liquidity and credit score progress.
Capex-linked sectors: Capital items and infrastructure are prone to profit from authorities spending.
Make in India themes: Prescription drugs and specialty chemical compounds proceed to supply long-term progress potential pushed by home demand and export alternatives.
(The writer Vinay Jaising, is CIO and Head – Fairness Advisory, ASK Personal Wealth)
Analyst Disclaimer: The knowledge and opinion expressed herein above don’t represent funding recommendation to purchase, promote, maintain any securities, kindly seek the advice of applicable SEBI registered middleman earlier than making funding associated choices. The opinions expressed above are private views of the writer. The views of the writer may additionally differ from the views expressed by every other writer of ASK Asset and Wealth Administration.
