Quote on Equity Outlook by Vinay Paharia, CIO, PGIM India Mutual Fund
Below the Quote on Equity Outlook by Vinay Paharia, CIO, PGIM India Mutual Fund
Equity Markets Outlook by Vinay Paharia:
In the near term, relatively higher tariffs imposed by the US on Indian exports, along with weaker than expected corporate earnings reports, may induce volatility in the markets. For the former, we believe, it is the relative attractiveness between competing nations that would determine which countries would be the net beneficiary in the tariff regime.
We believe India’s equity markets are navigating a complex landscape marked by strong long-term macroeconomic fundamentals and emerging valuation concerns in certain pockets. Such elevated valuations—especially in narrative-driven stocks—are prompting a style rotation toward high-quality and growth-oriented companies.
While long-term prospects remain optimistic—driven by resilient earnings, policy stability, and demographic tailwinds—we would focus on fundamentals like cash flow generation, capital allocation and relative valuations to navigate near-term volatility.
July 2025
Markets cautious amid tariffs, Q1 results
This July, the Nifty fell 2.9%, ending a four-month positive streak. Sentiment remained cautious amid uncertainty around India-US trade negotiations and a tepid Q1 results season with cautious management commentary in some pockets. Mid-cap and small-cap indices underperformed large-cap and were down 4% and 6%, respectively. Almost all sectors ended in the red, except healthcare (+3%) and FMCG (+2%). IT, realty and capital goods indices were down 9%, 7% and 6%, respectively. Within major emerging markets (Ems), Thailand (+14.0%), Indonesia (+8.0%), Taiwan (+5.8%) and China (+3.5%) saw significant gains, while Brazil (-4.2%) declined.
Key developments during the month were:
- India and the UK signed a Comprehensive Economic and Trade Agreement (CETA) aiming to boost annual bilateral trade,
- The IMF raised India’s FY2026 GDP growth outlook to 6.4% from 6.2%,
- The US Fed kept the interest rates unchanged and
- The US announced a 25% minimum tariff on Indian exports to the US.
Foreign Portfolio Investors (FPIs) turned negative after three months of continued inflows; they sold US$3.7 bn of Indian equities in the secondary market, whereas DIIs bought US$6.3 bn.
On the economy front:
- June Consumer Price Index (CPI) inflation moderated to a 77 month low of 2.1% from 2.8% in May,
- Wholesale Price Index (WPI) inflation for June came in at (-)0.1% YoY from 0.4% in May and
- Index of Industrial Production (IIP) growth in May declined to 1.2% from 2.6% in April.
India's merchandise trade deficit narrowed in June due to a sharp fall in imports, even as the value of exports slipped to a seven-month low following a drop in global commodity prices. The trade deficit stood at $18.78 billion in June, against $21.88 billion in the previous month. Goods exports fell to $35.14 billion in June, down 9% from May and nearly flat from a year earlier. Imports dropped to $53.92 billion from $60.61 billion in May and $56 billion in June 2024.
Gross bank credit grew at 10.4% in Jun’25 (vs 9.9% YoY in May’25/13.9% YoY in Jun’24) to INR 181trn (adj. for HDFC-HDFCB merger). On the earnings front, Nifty-50 Index net profits increased 8.2% YoY while Nifty-50 Index EBITDA increased 4.4% YoY, (based on 36 companies that have reported so far). 1QFY26 earnings season shows weakness in consumption, muted IT services demand and subdued loan growth for lenders. The FY2026E/27E earnings per share (EPS) of Nifty-50 Index has seen further cuts over the past one month, reflecting the weakening growth outlook, with FY2026E Nifty-50 EPS cut by 2% in the past one month.
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