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Below The Equity Outlook 12 June 2025 by Vinay Paharia,CIO,PGIM India Mutual Fund

Nifty rose 1.7% in May and logged a third straight monthly gain. Mid-cap and small-cap indices outperformed the large-caps and were up 6.1% and 8.7%, respectively. Almost all sectors ended in the green, except FMCG. Capital goods, realty and metals were up 13%, 7% and 6%, respectively.

Indian markets wavered in early May amid heightened tensions with Pakistan but rebounded after both nations agreed to a ceasefire. Global trade tensions eased around mid-month, following a breakthrough in talks between the US and China, resulting in an agreement for reduced tariffs. Global trade tensions resurfaced after a US Appeals Court reinstated reciprocal tariffs imposed during Donald Trump's presidency, causing uncertainty for export-oriented sectors.

Other key developments: (1) Moody’s Ratings downgraded the US sovereign credit rating, citing concerns over rising debt levels, (2) IMD has retained its April forecast for ‘above normal’ rainfall from June-September, (3) After the RBI announced a 25 bps repo rate cut in April, several banks have reduced their deposit rates multiple times in April and May, (4) The RBI transferred a surplus of Rs2.7 trillion to the central government for FY2025 and (5) The 4QFY25 net income of the Nifty-50 Index grew 7%.

FPIs bought US$2.1 bn of Indian equities in the secondary market whereas DIIs bought US$7.9 bn. The rupee depreciated by 1% in May and is down 2% YoY. India 10Y yields were down 10bps MoM at 6.25%.

On the economy front, (1) April CPI inflation moderated to 3.2% from 3.3% in March (2) WPI inflation for April eased to 0.9% YoY from 2% in March (3) IIP growth in April declined to 2.7% from 3.9% in March.

4QFY25 real GDP growth came in at 7.4% compared with 6.4% in 3QFY25. This was led mainly by investment (GFCF) growth at 9.4% (5.2% in 3QFY25). Private consumption growth softened to 6.0% (8.1% in 3QFY25), while government spending contracted 1.8% (9.3% growth in 3QFY25. 4QFY25 real GVA growthat 6.8% (3QFY25: 6.5%), was driven by construction sector growth at 10.8% (3QFY25: 7.9%), mirroring the robust growth witnessed in GFCF on the demand side (due to strong growth in government capex). Services growth at 7.3%was supported by public administration at 8.7% (3QFY25: 8.9%) and financial, real estate and professional services at 7.8%.

For Q4FY24,Nifty 50 Revenue/EBITDA/PAT (YoY) growth was 7%/4%/7%, respectively. Revenue was in-line for most companies. Profit After Tax was above expectations while EBITDA was a mixed bag. Nifty EPS for FY25 ended at INR1,013 (+1% YoY) and was lagging PAT growth over a high base of FY24 (+24% YoY) as the earnings normalized and tracked the revenue trend.

Banking sector (non-food) credit growth moderated to 9.8% as on 16 May’25 vs ~10.2% in Apr’25 (vs ~11% in Mar’25). The latest sectoral deployment data showed that credit growth moderated in Agri, industry and services sectors in Apr’25. Agri loans stood to 9.2% in Apr’25 vs 12.4% in Mar’25. However, loan to retail segment slightly improved to ~12% YoY in Apr’25 from 11.6% in Mar’25, aided by education, vehicle and gold loans.

Outlook

Geopolitical tension, trade negotiations and uncertainty in global macro environment continues. We continue to focus on domestic demand oriented sectors rather than those dependent on exports in terms of portfolio construction.

While we expect tariff related uncertainties to continue, we reckon India is well placed in the situation given its lower reliance on good exports vis-à-vis competing countries and possibly gain in the event of shifting of supply chain from China in the longer term.

The market has rebounded notably over the last two months, completely reversing its YTD decline and we are seeing some signs of exuberance in certain segments of the market. We reckon it is pertinent to stick to growth and quality mantra of investing while not overpaying for the same.

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