Market Watch

Equity Market Overview – July 2026

Domestic Equity Market Update

Indian equities ended the month on a positive note. Large cap-oriented BSE Sensex ended higher by 2.1% (MoM) and Nifty 50 ended higher by 2.2% (MoM). While the BSE Midcap index ended higher by 2.1%(MoM) and BSE Small cap index ended higher by 0.5% (MoM).

In terms of BSE sectoral indices, the sectors ended on a mixed note. IT, Consumer Durable and Realty were the outperformers during the month.

During the month, FPIs were net sellers in equities to the tune of Rs 220 bn. (Data as on 30th July). 

Domestic equity markets ended the month on a positive note supported by strong Q1 FY27 earnings from heavyweight companies, renewed foreign institutional investor inflows, positive global cues and a firmer rupee. Gains were further supported by a decline in crude oil prices in the month end, which provided some relief by easing concerns over inflationary pressures and rising input costs.
 

Global Market Updates

US equity markets ended the month on a mixed note as robust quarterly earnings from technology giants eased investor concerns about the high costs associated with artificial intelligence (AI) infrastructure. However, the gains were limited fuelled by Higher oil prices, ongoing inflation concerns and geopolitical tensions in the Middle East.

European equity markets ended the month on a positive note as investors assessed corporate earnings despite ongoing Middle East tensions and concerns about inflation and global economic growth. Additionally, expectations of measures to strengthen Europe’s automotive sector and strong gains in the AI and technology sectors supported investor sentiment confidence.

Brent oil prices rose from USD 72.92 per barrel to USD 90.12 as escalating geopolitical uncertainties raised concerns over potential supply disruptions through the Strait of Hormuz.

Most of the Domestic Macro data points showed a strong picture

The International Monetary Fund (IMF) trimmed its global growth forecast for CY26 to 3% YoY from the 3.1% YoY it had projected in April 2026. It also forecast global growth of 3.4% YoY for CY27.

The International Monetary Fund (IMF) pared its growth forecast for India by 10 bps to 6.4% YoY for FY27 from its April 2026 forecast, saying higher energy prices may offset the resilience in the country’s economic activity. For FY28, the multilateral organisation upgraded its growth forecast by 20 bps to 6.7% YoY.

Moody's Analytics said in its latest global outlook commentary that India will remain the fastest-growing major economy in CY26 and CY27 even as it "will lose a step, too" amid softer growth elsewhere. The global economy is expected to grow at 2.5% YoY in CY26 and 2.8% YoY in CY27, both short of the 3% YoY - plus growth the world is capable of.

The Asian Development Bank (ADB) has approved a USD 1 bn loan to support the Government of India's urban reform agenda and maintain momentum in urban investments and reforms aimed at transforming cities into engines of economic growth, innovation, and liability.

Rating agency ICRA said that India's economy likely expanded in the range of 6.4-6.6% YoY in Q1 FY27, despite elevated energy prices and limited input availability weighing on the margins of key sectors, after economic output exceeded expectations in the previous quarter.

According to a World Trade Organisation (WTO) report, India is aiming to increase its share of global merchandise exports from about 1.8% in 2024 to around 10% by 2047. To promote exports, India maintained various duty exemption, remission, and rebate schemes. 

The United States has imposed a 10% tariff on goods imported from India and 16 other countries as part of its efforts to combat the use of forced labour in the production of such items. US Trade Representative Jamieson Greer announced the new tariffs on 60 countries under Section 301 of the Trade Act, a day before the expiration of 10% additional levies on all countries.

According to a report by Crisil Intelligence, India, which imports around 98% of its domestic methanol requirement, sourced only around 51% of its imports from the Middle East during March-May 2026, down from about 88% during April 2025-February 2026. The shift comes after the conflict disrupted production and logistics across the Gulf, forcing Indian buyers to seek alternative suppliers.

According to Crisil Ratings, NBFCs drove India’s securitisation market to its strongest-ever first-quarter performance in Q1 FY27, with issuances rising 22% YoY to around Rs 600 bn. More than 98% of the volume originated from NBFCs, unlike previous peak periods when bank-originated transactions had also contributed significantly.

According to FADA, India's passenger vehicle sales stood at 4,10,853 units, recording a jump of 28.63% YoY in June 2026. It reported that the total automobile industry retailed 25,57,234 units with a 21.83% YoY growth in June 2026 with tractors recording 25.31% YoY growth, two-wheelers at 21.22% YoY, commercial vehicles at 16.88% YoY and three-wheelers at 16.21% YoY.

Final data compiled by S&P Global showed that the seasonally adjusted HSBC India Services PMI dropped to 57.4 in June 2026 from 59.8 in May 2026. The flash score was 57.3. The softer increase in services output was due to the slowest growth in new orders in over two-and-a-half years. 

According to ICRA, India's power transmission sector is likely to witness Rs 6 trillion in investment over the next six years through 2032 as the country gears up to integrate upcoming Renewable Energy (RE) capacity into the grid.

Flash survey results from S&P Global showed that the HSBC flash composite output index of India dropped to 54.3 in July 2026 from 57.1 in June 2026. India's private sector activity expanded at the slowest pace in nearly four-and-a-half years in July 2026.

According to NSO, India’s Industrial Output growth surged to a 23-month high of 7.3% YoY in June 2026, up from a downwardly revised 5% YoY in May 2026, driven by a favourable base effect and broad-based acceleration across all four major sectors.

According to data released by the Ministry of Commerce and Industry, growth in India's nine core sectors accelerated to a five-month high of 5% YoY in June 2026 from 3.2% YoY in May 2026.

According to data released by the GSTN, E-way bill generation under the Goods and Services Tax (GST) regime rose 14.5% YoY to a four-month high of 136.77 mn in June 2026 from 119.46 mn a year earlier. It’s pointing to continued resilience in goods movement and steady tax compliance.

The government released the trial Index of Services Production (ISP) for April 2026 for 19 sectors that together account for nearly 60% of overall India’s services output. Data released by the National Statistics Office showed that among the sectors, accommodation and food saw the highest growth of 37.2% YoY, compared to 0.7% YoY in April 2025. The sector that performed the worst was air transport, which contracted 14% YoY as against a 4.5% YoY increase in the corresponding period last year.

From Nifty 200 universe, 73 companies have announced their Q1 FY27 earnings thus far. At an aggregate level, Sales, EBITDA and PAT have grown by 18.81%, -6.40% and -0.44% YoY, respectively. Excluding Financials, Sales, EBITDA and PAT have grown by 23.86%,      -9.49% and -17.35% YoY respectively. 

From Nifty 500 universe, 150 companies have announced their Q1 FY27 earnings thus far. At an aggregate level, Sales, EBITDA and PAT have grown by 20.17%, -1.68% and 3.32% YoY, respectively. Excluding Financials, Sales, EBITDA and PAT have grown by 25.79%,     -5.64% and -12.71% YoY respectively. (Note: Data as on 24th July 2026)

Outlook & Investment Strategy

Going forward, the Indian equity market is likely to be supported by any moves around the final details pertaining to India-US trade deal, volatility in crude prices, Forex inflows led by FCNR-B and ECB concessions by the RBI. Though spatial distribution of monsoons, rising concerns over AI-led disruptions, weakness in INR, remains a risk. India’s growth momentum remained strong in FY26 reflecting the inherent strength of our economy, although RBI’s projection of lower growth and higher inflation indicates fears of slowdown on back of West Asia war. The renewed hostilities in US and Iran had casted doubt on the future of the interim US-Iranian agreement that was reached last month, which aimed to ‌reopen the Strait of Hormuz and end the war after 60 days of negotiations, but the recent comments by the US President have eased concerns and brought energy prices down which is a positive for market sentiments. Early trends in Q1 FY27 earnings season indicate healthy top line growth across sectors with pockets like Consumer Services, Auto and Auto components, Realty delivering very strong numbers. However, on the profitability front the numbers remained subdued likely driven by higher commodity prices in some large companies.

The Valuations of Indian equity markets remain fair, with the Largecap indices trading below long-term averages, and Smallcap indices’ earnings growth potential supporting the premium multiples; while Midcap indices remain the expensive of the three. With expectations of improved liquidity conditions post the FCNR-B collections, there could be a case for further re-rating in companies that can show improved incremental growth potential.

Fund Managers who can be fairly nimble and identify growth ideas, could generate alpha vs their peers. While FPIs have been big sellers in the Indian markets, India’s relative underperformance vs its peers in the recent months and depreciated Rupee are likely to gradually make the Indian markets attractive for them. The FPIs’ holdings in Indian markets have also fallen to recent lows which implies that they may not be willing sellers for long.

Investment deployment strategy could remain 60% lumpsum and rest 40% to be staggered over the next 3-4 months. Mutual Fund investors can look to focus on categories like Largecap, Flexicap, Multicap, Large and Midcap and Hybrid funds while using STPs as an instrument to invest in Midcap and Smallcap funds. Aggressive investors may also look at Business Cycle Funds for allocation. All allocations should be done in line with the risk profile and product suitability of the investor.

Debt Market Overview July 2026

 

Banking system liquidity as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF) stood at a daily average surplus of ~Rs 1.07 trillion in July 2026 as against a daily average surplus of ~Rs 784.68 billion in the previous month. The call money market traded in the range of ~4.70-5.35% during the month.

Domestic G-sec yields closed higher in June 2026, as the 10-year benchmark, 6.94% G-Sec 2036 bond, ended at 6.83% compared to the previous month’s close of 6.75%. Yields rose as renewed US airstrikes in the Middle East heightened geopolitical tensions. Yields rose further after the US Fed kept interest rates unchanged at its July 2026 policy meeting, while uncertainty surrounding the future rate trajectory pushed US Treasury yields higher. 

The US Consumer Price Index decelerated to 3.5% YoY in June 2026 from 4.2% YoY in May 2026. In a widely expected move, the US Fed announced that it has once again decided to maintain the target range for the federal funds rate at 3.5% to 3.75%, keeping rates unchanged for the fifth consecutive meeting. Eurozone inflation decelerated to 2.8% YoY in May 2026, down from the 3.2% YoY in May 2026, driven by easing energy prices during the month. The Governing Council, led by ECB President Christine Lagarde, held the deposit rate steady at 2.25%, the refinancing rate at 2.40% and the marginal lending rate at 2.65%. China left benchmark lending rates unchanged for the 14th consecutive month in July 2026. The one-year Loan Prime Rate (LPR) was kept at 3.00%, while the five-year LPR was unchanged at 3.50%.

India’s Consumer Price Index (CPI) based retail inflation accelerated to 4.38% YoY in June 2026 from 3.93% YoY in May 2026, on the back of further acceleration in food inflation, and an increase in the prices of Silver/Gold/Diamond/Platinum Jewellery, etc. The Wholesale Price Inflation (WPI) rate based on the 2022-23 series rose to its highest at 9.87% YoY in June 2026 from 9.68% YoY in May 2026, as a broad-based pickup in prices of food and primary articles more than offset a moderation in energy costs. India's Merchandise Trade Deficit widened to USD 30.43 bn in June 2026 from USD 28.21 bn in May 2026 and USD 19.10 bn a year earlier. India's Fiscal Deficit in April-June 2026 stood at Rs 3.1 trillion, or 18.2% of the estimate for FY27. The deficit in the same period last year stood at Rs 2.8 trillion. Gross and Net Goods and Services Tax (GST) collections rose 15.4% YoY and 15.8% YoY, respectively, in July 2026, with the increase driven largely by robust revenue from imports. Gross GST collections stood at Rs 2.11 trillion in July 2026, while net collections rose to Rs 1.81 trillion. According to preliminary Balance of Payments (BoP) data released by the RBI, India recorded a Current Account Deficit of USD 2 bn in May 2026 as imports exceeded merchandise exports. The current account had recorded a surplus of USD 0.7 bn in May 2025. 

The liquidity condition, as measured by RBI’s net LAF, improved and remained in surplus during the month. In its June 2026 MPC meeting, the RBI had kept the Repo Rate unchanged at 5.25% and continued with its neutral stance. They had also revised the CPI inflation estimate for FY27 upwards to 5.1% YoY from 4.6% YoY previously and the GDP growth estimate downwards to 6.6% YoY from the previous estimate of 6.9% YoY. India’s CPI-based inflation accelerated to 4.38% YoY in June 2026 from 3.93% YoY in May 2026. Despite recent improvements, the monsoon season has been substantially deficient, and its spatial distribution remains a concern. The market has been factoring in the possibility of rate hikes going forward. While the RBI governor highlighted risks to inflation from the West Asia conflict and a weak monsoon, the MPC is expected to remain on wait and watch mode. The spate of measures announced by the RBI and subsequent FPI flows have been positive for debt market yields. However, deferral of inclusion of Indian G-secs in Bloomberg’s Global Aggregate Bond Index may dampen sentiments. In the US, the Federal Reserve kept rates unchanged in the July Policy meeting, keeping their target range at 3.50-3.75%, and also showed unanimous commitment towards bringing inflation down. However, they saw 3 members voting for a rate hike in the current policy. The ongoing stop start nature of West Asia conflict has put kept energy prices volatile and will continue remain a key monitorable.

Thus, at this juncture, a case continues to exist for investment into Corporate Bonds that are at the 3-5-year segment of the curve, as despite narrowing of spreads yields are still lucrative. Hence, investors can look at Corporate Bond Funds and Short Duration Debt Funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors may consider Income Plus Arbitrage FoFs. As yields in the less than 1-year segment remain high for corporates, for a horizon of 3 months and above, investors can consider Arbitrage Funds and Low Duration Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors should invest in line with their risk profile and product suitability.

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