Monthly Market Outlook & Presentation September 2025 by SBI Mutual Fund
Macro / Economy
* Real GDP growth (Q1 FY26) strong at 7.8%, but nominal GDP slowed to 8.8%.
* Weak nominal growth is visible in corporate earnings.
* US tariffs (50% headline, ~35% effective) likely to weaken exports; slower govt. spending adds pressure.
* Govt. reform push: GST overhaul (3 slabs: 5%, 18%, 40%), trade deals, deregulation, and FDI easing to support consumption and growth.
Equity Outlook
* Indian equities underperformed peers: Nifty (-1.2%), Sensex (-1.6%), Midcaps (-2.8%), Smallcaps (-3.6%) in August.
* On a 12M basis: MSCI India -10% vs MSCI EM +18% (USD returns).
* Global backdrop: Dollar weakness supports EM equities & commodities; but rising developed-market bond yields pose risks.
* Domestic boost: GST rationalisation and tax cuts support consumption; consumer-facing sectors already outperforming.
* Neutral stance maintained: valuations & sentiment both neutral.
Fixed Income Outlook
* Since RBI$B!G(Js June actions, bond yields inching higher, stalling softening trend.
* G-Sec yields (Jun(J–(JAug): 3Y rose from 5.70% $B"*(J 6.09%; 10Y from 6.19% $B"*(J 6.57%; 30Y from 6.82% $B"*(J 7.30%.
* SDL spreads widened, demand-side issues surfacing.
* Demand headwinds:
* Slowing tax revenues, GST rationalisation reduces buffers.
* Shift in institutional allocations (NPS, banks, insurance).
Taxation changes hurting debt MF & insurance flows.
* RBI interventions (OMO, twists) may provide near-term support.
* Outlook: volatile yields, neutral-to-cautious stance, preference for short-tenor high-grade bonds.
Presentation:
Global Economy & Markets
* Best performing assets YTD: Precious metals (gold, silver), followed by EM equities and industrial metals.
* US tariffs: Effective tariff rate now ~18(J–(J19% (highest in a century); India hit with 50% tariffs (effective ~35%), affecting exports (23% of India$B!G(Js shipments go to US).
* Trade deals: US struck deals with EU, Japan, Indonesia, Vietnam, Philippines, UK(J—(Jgenerally unequal, with tariffs higher than earlier baselines.
* Macro imbalances: US runs a ~$1T trade deficit, China a matching surplus; global trade volumes risk stagnation unless China/EU boost demand.
* Dollar: Weaker YTD but still overvalued; further depreciation possible.
* Monetary policy: Most DMs held rates steady; some EMs (UK, Indonesia, Thailand, Philippines) cutting. India cut repo to 5.5% by Aug-25.
Commodities
* Metals & energy: Prices rose marginally in Aug; copper volatile due to US tariff but input exemptions helped soften.
* Gold: Strong rally driven by weak dollar, stagflation fears, geopolitical risks. Central banks (incl. RBI) major buyers, gold now ~11% of India$B!G(Js reserves.
* ETFs returning to gold after years of net outflows.
* Outlook: Valuations high but gold remains a core portfolio diversifier.
India (J–(J Economic Activity
* GDP: Q1 FY26 real growth 7.8% (nominal 8.8%, a 3-quarter low). Concerns on data reliability due to deflator method. Nominal likely better indicator.
* Consumption: Weak(J—(Jhousehold consumption +9.2% (vs historic 12(J–(J13%).
* Investments: Gross capital formation +8%.
* Exports: +8% nominal; but tariff shock to impact labour-intensive sectors.
* Agriculture: Sharp slowdown (3.2% nominal).
* Services: +11.3% boosted by govt. spending.
India (J–(J Policy & Reforms
GST reform: Simplified to 3 slabs (5%, 18%, 40%). Expected to reduce compliance burden, lower consumer prices (esp. FMCG, cement, autos, health insurance).
* Consumer benefit depends on producer pass-through; revenue neutrality still debated.
* Govt borrowing unlikely to rise due to reform.
High-Frequency Indicators
* Mixed signals:
* GST collections slowed (7% growth vs ~16% earlier).
* Bank credit sluggish at 9(J–(J10% y-o-y despite rate cuts.
* Petroleum demand weak (esp. industrial fuel).
* Air traffic, cement, steel show resilience.
* Consumer sentiment (urban & rural) still fragile.
* CPI inflation trending below 2%, WPI negative.
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