Insights.

Market Outlook · July 2025

Market Outlook – July 2025

“Emotions are your worst enemy in the stock market.”

Nifty index
continued strength from May and witnessed renewed buying interest towards the
end where the index jumped above 25,650 zones in June. It consolidated for most
part of the month with shallow dips in between which were quickly absorbed.

All broader
indices jumped 3%. Nifty up 3.1%, Sensex 2.65%, Large Cap 3.14, Midcap 3.81%
& Small cap 3.97%. On the sectoral front we have witnessed continued buying
interest in the Financials, Infra, Auto, Private Bank, Consumption, Metal and
IT sector while fresh buying interest is witnessed in sectors like Pharma with
some weakness and short build up in FMCG space.

Foreign
Institutional Investors (FIIs) purchased shares worth INR 7,448.98 Cr., while
Domestic Institutional Investors (DIIs) acquired shares worth INR 72,673.91
Cr. On the domestic front, GST collections for the month of June stood at
INR 1.85 Lakh Cr.

The IIP growth
rate for May 2025 stood at 1.2%, down from 2.7% in April 2025. The subdued
growth was primarily due to sluggish performance in Mining and Electricity
sectors, which contracted by 0.1% and 5.8%, respectively. However, the
Manufacturing sector grew by 2.6% in May 2025.

Retail inflation
eased to 2.82% in May 2025, down from 3.16% in April 2025, as food prices
continued to soften. In the latest policy announcement, the Repo rate was cut
by 50-basis points to 5.5%, accompanied by a 100-basis point cut in the CRR.
Additionally, the policy stance was shifted back to ‘neutral’ from
‘accommodative’ all of which were unexpected moves.

On the
international front, global economic data signalled diverging trends across
regions. In the U.S., signs of a slowdown emerged as Q1 GDP contracted by 0.5%
QoQ and retail sales in May 2025 declined by 0.9% MoM, raising expectations of
early rate cuts. All eyes are now on the upcoming tariff decision by Trump,
scheduled for July 09, 2025.

Federal Reserve
kept interest rates unchanged during its June FOMC meeting. The policy stance
was neutral with the dot plot now signalling two rate cuts in 2025. The U.S.
benchmark yield eased to 4.35% in June, down 15 bps from previous month as the
expectation of rate cut has increased with some Fed Governors rooting for the
same. The Fed Chair is still on wait and watch mode as he awaits clarity on the
impact of Trump tariffs on inflation.

The markets were
buoyed by the RBI decision but corrected sharply due to the Israel Iran war.
However, the ceasefire led to bullish sentiment in the market. Although
the dampening global economic outlook could impact India’s economic growth
through weaker external demand, the domestic growth engines, viz., consumption
and investment, are relatively less susceptible to external headwinds.

Market has
recovered significantly from recent lows. Many stocks in spaces such are
defence and capital market have registered a new all-time high. A Sharp cut in
interest rates by RBI has helped as has low crude prices. Strong Q4 results vs
expectations improved sentiment. Dollar Index lower than 100, weaker USD, etc
are all positive for risk and growth assets.

Key events in
July:

  • US tariff deadline on 9th of July, since
    most of the deals not yet done, if extended (+ve for markets) if not (-ve for
    markets)
  • Fed Interest Rate Decision on 30th July.
    Expect no change. Neutral for markets.
  • Quarterly results (Q1) to be declared – (Neutral to
    +ve for markets)

The CROSSOVER
quarter! 

As we step into
the 1QFY26 earnings season, the first six months of 2025 have proven to be one
of the most eventful periods, characterized by heightened geopolitical tensions
and international economic hostilities, culminating into both kinetic and
non-kinetic wars. This spawned not just heightened market volatility (S&P
500 VIX touching 50%+ and India VIX touching 20%+) but also a high level of
economic uncertainty and ambivalent signals for monetary policymakers,
adversely affecting corporate earnings visibility.

Despite such an
adverse backdrop for equities, the global equity markets, including India, have
shown impressive resilience in 2025, with Korea (+25% in 6M), China (+20%),
Germany (+19%), and Brazil (+19%) leading the way, while India has also
recouped 6% since Jan’25.  

Investors have
chosen to look beyond the near-term geopolitical haze and focus more on
long-term market cycles. While the Indian equity market has underperformed EM
in CYTD25, it has still risen by 6% during the year, despite facing its own
geopolitical challenges and a full-scale kinetic war. Amidst the pall of
geopolitical gloom, the Indian economy is standing out for its relative
economic stability, with several macro parameters turning favourable and
corporate earnings expected to be on a progressively improving cycle going
forward.

Seasonality
Chart – Nifty 500

Over the last 10
years, July has consistently delivered the strongest returns for the NSE 500
index, with an average gain of 3.83%, making it the most reliable month for
positive market performance. This period coincides with the onset of the
monsoon season which is a critical factor for the Indian economy where over 50%
of agricultural activity depends on rainfall. A timely and well spread monsoon
boosts rural income, leading to higher consumption of goods ranging from FMCG
and two-wheelers to fertilizers and tractors.

This surge in
rural demand often acts as a tailwind for corporate earnings in several
sectors, lifting overall market sentiment. Additionally, the beginning of the
monsoon reduces uncertainty related to inflation and food prices, further
improving investor confidence. As a result, July typically benefits from a
favorable macro backdrop, making it a historically rewarding period for equity
investors in India.

Investment Strategy:

  • Nifty
    range 24,800-26,000; downside limited.
  • The
    market remained range-bound last week as investors awaited clarity on the
    upcoming US-India trade deal and the US tariff deadline on July 9.
  • A
    decisive breakout above the 26,000 level could pave the way for a continued
    rally toward new all-time highs. Analysts suggest that investors consider using
    market dips as buying opportunities.
  • US-India
    trade deal stuck due to non-agreement in dairy & agri sector. A mini deal
    may be announced soon sans dairy & agri.
  • Markets
    in July will be expected to be highly volatile. Q1 results & Tariffs will
    be the key for further direction for markets. India is still the over-valued
    markets in the world. Need some strong results to win back FII flows, else
    markets will remain range bound.

Written by

Mushtaq Kazi

Mushtaq is the co-founder of Moneyfrog.in. Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University. His interests include cooking & gardening. When he is not cooking or gardening, he is writing.

All articles by Mushtaq

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