Market Watch

Equity Market Overview – June 2026

Domestic Equity Market Update

Indian equities ended the month on a positive note. Large cap-oriented BSE Sensex ended higher by 2.3% (MoM) and Nifty 50 ended higher by 1.4% (MoM). While the BSE Midcap index ended higher by 1.4%(MoM) and BSE Small cap index ended higher by 5.3% (MoM).

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

During the month, FPIs were net sellers in equities to the tune of Rs 274 bn. (Data as on 29th June). 

Domestic equity markets ended the month on a positive note supported by easing geopolitical tensions and increasing optimism surrounding a potential US–India bilateral trade agreement. Markets were supported by a decline in global crude oil prices, as signs emerged that tankers stranded in the Gulf since the onset of the Iran conflict were beginning to transit through the Strait of Hormuz. This eased investor concerns over inflation and boosted overall sentiment.
 

Global Market Updates 

US equity markets ended the month on a mixed note. Technology-led rebound lifted equity market sentiment after the US President signalled progress toward a potential agreement with Iran alongwith resilient economic data, even as hawkish signals from the US Federal Reserve and expectations of potential interest rate increases kept investors cautious about the policy outlook. However, volatility increased in markets on back of concerns for the outlook of AI trade.

European equity markets ended the month on a mixed note with improving sentiment around potential progress in US-Iran negotiations and softer oil prices helped ease inflation concerns. However, gains were limited due profit booking in technology stocks amid challenging macroeconomic conditions.

Brent oil prices fell from USD 92.05 per barrel to USD 72.95 amid indications that more tankers stranded in the Gulf since the start of the Iran conflict were beginning to move through the Strait of Hormuz with the US President and his Iranian counterpart remotely signed a preliminary agreement to end the 110-day conflict.

Most of the Domestic Macro data points showed a strong picture

According to S&P Global Ratings, energy stress, a sub-par monsoon, and slowing global growth will pull down India's GDP growth to 6.6% YoY in FY27. The Indian economy recorded 7.7% YoY in FY26 and 7.1% YoY in FY25. The growth projection is in line with the RBI’s estimate.

The Organisation for Economic Co-operation and Development (OECD) raised its growth forecast for India by 20 bps to 6.3% YoY for FY27.

According to a report from the World Bank, global energy prices are expected to remain elevated in CY26 with a 36% YoY increase in the Brent crude oil prices due to the persisting conflict in the Middle East and the closure of the Strait of Hormuz. Commodity prices are anticipated to rise by 22% YoY in CY26, in contrast to the 7% YoY decline expected in January 2026. 

As per RBI data, sales growth of listed private non-financial companies rose to 13.9% YoY in Q4 FY26 from 10.1% YoY in Q3 FY26, driven by the manufacturing and services sectors. Sales of 1,817 listed manufacturing companies grew 14.5% YoY in Q4 FY26, compared with 11.4% YoY growth in the previous quarter.

As per RBI data, bank credit grew at its fastest pace in nearly two years in the fortnight ended May 31, 2026, rising 17.65% YoY, showing sustained momentum in lending activity across the banking system. Deposit growth, however, lagged at 12.21% YoY.

As per data from the Ministry of Commerce and Industry, growth in India's Eight Core Sectors slowed to a seven-month low of 0.5% YoY in May 2026 from an upwardly revised 1.8% YoY in April 2026, weighed down by sharp contractions in coal and petroleum products. 

As per data from the Income Tax Department, India's Net Direct Tax collections rose 14.64% YoY to Rs 5.21 trillion from April 1 to June 17 of FY27, as compared with Rs 4.5 trillion collected during the same period of FY26. Gross Direct Tax collections increased 12.46% YoY to Rs 6.1 trillion from Rs 5.4 trillion over the period.

According the Periodic Labour Force Survey (PLFS), India’s Unemployment Rate climbed to an 11-month high of 5.5% in May 2026 from 5.2% in April 2026. Notably, the Labour-Force Participation Rate (LFPR) hit an 11-month low of 54.4% in May 2026, down from 55% recorded in April 2026.

As per data from the Petroleum Planning & Analysis Cell (PPAC), India's crude oil import bill rose 81.5% YoY in May 2026 to USD 18.7 bn as the West Asia crisis resulted in elevated energy prices.

According to the Ministry of Statistics and Programme Implementation (MoSPI), the first-ever monthly Index of Services Production (ISP), measuring the output of India’s services industry, will be released on July 14, 2026. It is conceived as the services-sector counterpart to the long-standing Index of Industrial Production (IIP).

As per data from the GSTN, E-way bill generation under the Goods and Services Tax (GST) regime rose to 136.08 mn in May 2026, a near 11% YoY increase from 122.65 mn in May 2025.

According to the Crisil report, the composition of bank deposits has undergone a shift from FY19 to FY26, with the share of the non-household segment, including financial corporations and non-financial corporations, rising to 26.3% in FY26 from 20.5% in FY19.

According to rating agency ICRA, geopolitical tensions in West Asia are likely to act as a key overhang, impacting earnings of India Inc with a 100-150 bps contraction in operating profit margin. Besides, development of El Nino conditions could potentially disrupt rural demand, impacting revenues of a large section of the corporate sector, which had posted a healthy revenue growth in Q4 FY26.

According to S&P Global, the HSBC Flash India Composite Purchasing Managers' Index (PMI) Output Index fell to 57.4 in June 2026 from 59.3 in May 2026. Manufacturing PMI fell to 54.5 in June 2026 from 55 in May 2026, while the Services PMI declined to a 17-month low of 57.3 from 59.8 during this period.

As per data compiled by S&P Global, the HSBC India Services Purchasing Managers' Index (PMI) rose to 59.8 in May 2026, up from 58.8 in April 2026.

As per data from FADA, India's automobile retail sales grew 9.55% YoY to a record 25,31,067 units in May 2026.

According to a report Mercom India Research, India added a record 2.7 GW of rooftop solar capacity in Q4, marking sector's strongest-ever quarterly performance as installations surged 125% YoY.

As per AMFI data, net Mutual Fund (MF) inflows into active equity schemes plunged 40% MoM in May 2026, as weaker lump-sum investments and higher redemptions weighed on flows. Gross inflows into equity schemes fell 18% MoM to Rs 576.04 bn, while redemptions rose 9% MoM to Rs 346.96 bn, dragging net inflows down to a one-year low of Rs 229.08 bn.

Outlook & Investment Strategy

Going forward, the Indian equity market is likely to be supported by driven by any moves around the final details pertaining to India-US trade deal, Declining crude oil prices, Forex inflows led by FCNR-B and ECB concessions by the RBI. Though spatial distribution of monsoons, rising concerns over AI-led disruptions, movement in the US Dollar index and INR, remains a risk. The fund managers believe that the impact of raw material inflation on account of the supply side disruption could be felt in the coming quarters although markets could look through the earnings for Q1FY27 as oil prices have come off substantially. 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 US and Iran have agreed to halt recent hostilities and the traffic through Strait Hormuz is increasing, but the situations remain volatile because both sides have continued to accuse each other of violating the peace agreement. 

The market valuations have come off for large caps on back of FPI selling while there are also select opportunities to be taken in Mid and Small cap space in names which can incrementally deliver higher earnings growth going ahead. Interestingly, Mutual Funds’ cash, as a percentage of their total AUM, has dipped to recent lows, suggesting that Indian Mutual Funds feel that valuations are right to deploy higher cash.

As signs of cessation of the West Asia war have emerged, energy prices seem to be cooling off sharply. The OPEC too has announced production hikes, which could ease oil prices once the Hormuz traffic normalises. Additionally, a better-than-expected US-India trade deal could also act as a tailwind. Thus, investors could use the market volatility due to this event as an investing opportunity.

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 Flexicap, Multicap, Large and Midcap, Value 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 June 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 784.68 billion in June 2026 as against a daily average surplus of ~Rs 1.63 trillion in the previous month. The call money market traded in the range of ~4.75-5.40 during the month.

Domestic G-sec yields closed lower in June 2026, and the 10-year benchmark, 6.94% G-Sec 2036 bond, ended at 6.75% compared to the previous month’s close of 6.98%. Indian G-sec yields declined as the RBI unveiled a series of measures to attract foreign investment. Gains were further supported as crude oil prices continued to ease, reflecting reduced market anxiety over the US–Iran conflict as peace talks progressed, and the RBI Governor said it was “premature” to discuss rate hikes, noting that the central bank would first assess the second-round impact of rising crude oil prices on broader inflation before making any rate decisions. 

The US Consumer Price Index accelerated to 4.2% YoY in May 2026 from 3.8% YoY in April 2026. Following Kevin Warsh's first monetary policy meeting as chairman, the US Federal Reserve announced its widely expected decision to leave the target range for the Federal Funds Rate unchanged at 3.50-3.75%. In Q1 CY26, Euro area GDP fell by 0.2% QoQ, reversing the 0.2% QoQ increase recorded in Q4 CY25. Eurozone inflation accelerated by 3.2% YoY in May 2026, up from the 3.0% YoY increase in April 2026, driven by higher energy prices. The Bank of Japan (BoJ) decided to raise its benchmark interest rate by 25 bps to its highest level in 31 years, and to halt government bond purchase reductions next year. The BoJ Policy Board voted 7-1 to raise the interest rate to 1.00% from 0.75%, as widely expected. China left benchmark lending rates unchanged for the 13th consecutive month in June 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 3.93% YoY in May 2026 from 3.48% YoY in April 2026, as food and transport costs edged higher. Factory-gate inflation, measured by the Wholesale Price Index (WPI), rose to 9.68% YoY in May 2026 from 8.3% YoY in April 2026. India's Merchandise Trade Deficit eased to USD 28.21 bn in May 2026 as compared to USD 28.38 bn in April 2026. The RBI Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 5.25% and retain the stance at neutral. It raised the Consumer Price Index (CPI) inflation forecast for FY27 to 5.1% YoY from 4.6% YoY and reduced the Real GDP growth forecast to 6.6% YoY from the 6.9% YoY projected earlier. The RBI announced a series of measures, including expanding foreign investor access to government securities under the Fully Accessible Route (FAR), easing investment restrictions for Foreign Portfolio Investors (FPIs), enhancing investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India. India's GDP grew at 7.7% YoY during FY26 as compared to 7.1% YoY in FY25. In Q4 FY26, the GDP is estimated to have grown 7.8% YoY. India's Net Direct Tax collections rose 14.64% YoY to Rs 5.21 trillion from April 1 to June 17 of FY27, as compared with Rs 4.5 trillion collected during the same period of FY26. Gross Direct Tax collections increased 12.46% YoY to Rs 6.1 trillion from Rs 5.4 trillion over the period. India reported a Current Account Surplus of USD 7.1 bn, or 0.7% of GDP, Q4 FY26. The surplus stood at USD 13.7 bn, or 1.4% of GDP, in Q4 FY25.

The liquidity condition, as measured by RBI’s net LAF, deteriorated, but remained in surplus during the month. In its June 2026 MPC meeting, the RBI kept the Repo Rate unchanged at 5.25% and continued with its neutral stance. RBI revised its CPI inflation estimate for FY27 upwards at 5.1% YoY from 4.6% YoY previously. They also revised the GDP growth estimate downwards to 6.6% YoY from their previous estimate of 6.9% YoY. India’s retail inflation, measured by the CPI, accelerated to 3.93% YoY in May 2026, from 3.48% YoY in April 2026. The deficient start to the monsoon season and its further progress will be keenly watched as the adverse impact of El-Niño conditions on rainfall and inflation continues to remain a point of concern. The market has been factoring in the possibility of rate hikes going forward. However, the RBI may take further policy action only after seeing the second order effect of crude prices on inflation which has come off since interim peace deal between US and Iran took place. The spate of measures announced by the RBI in the latest monetary policy is expected to incentivize capital flows to India and is positive for market sentiments and capital flows. Market participants are now seeing higher probabilities of inclusion of Indian G-secs in Bloomberg’s index which can aid in keeping liquidity comfortable and support bond prices going forward. In the US, as widely anticipated, in the first meeting under the new Fed Chair Kevin Warsh, the Federal Reserve kept rates unchanged in the June Policy meeting, keeping their target range at 3.50-3.75%. However, they saw 9 members predicting a rate hike and highlighted their strong and unanimous commitment towards bringing down inflation. Further progress around interim peace deal between US and Iran, and ease of traffic around the Strait of Hormuz, will remain a key monitorable. 

Thus, at this juncture, with lucrative yields, a case continues to exist for investment into Corporate Bonds that are at the 3-5-year segment of the curve. 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 or consider Dynamic Bond Funds for tactical opportunity. 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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