Dear Investors,
The market started the month of May 2025 on a nervous note when Indian Armed Forces launched Operation Sindoor on terror camps inside Pakistan. However, the market showed remarkable resilience and bounced back after ceasefire was announced. The Sensex closed May 2025 above the psychologically important 80,000 level, while the Nifty closed around 24,700. The broader market outperformed Nifty, with Nifty 500 gaining 3.5%. Small caps outperformed midcaps in May. The market was resilient amidst global risk factors. FII flows continued to be robust with nearly Rs 20,000 crores of net purchase in May. DIIs continued to repose confidence in Indian equities with nearly Rs 49,000 crores of net purchases. Among industry sectors, defence, realty, metals, telecom, infrastructure, automobiles, capital goods, commodities and consumer discretionary outperformed in the month of May. FMCG, banks and oil & gas underperformed.
US markets rallied after the US Supreme Court blocked Trump Administration's sweeping tariffs. The S&P 500 rose by 6.2%, while NASDAQ rallied nearly 10%. Hang Seng also rallied after there was some progress in US China trade talks. Trade policies of the Trump Administration continue to be the biggest risk factor for global risk sentiments. Stalling of US China trade talks and possibility of trade war between the two countries is impacting global risk sentiments. Escalating tensions over US EU trade dispute over tariffs is another major risk factor. The Court has allowed the Government to collect tariffs for the time being after the Trump Administration appealed against the US Supreme Court ruling.
The major news for global bond markets was the sovereign rating downgrade of the United States by Moody's. The US 10-year Treasury Bond Yield rose by 15 bps last month. Concerns about widening fiscal deficit and trade uncertainties can lead US bond yields higher. There was good news for debt investors in India since both short term and long-term bond yields declined. The 1-year G-Sec yield fell by 46 bps, while the 10-year G-Sec yield declined by 25 bps. Short term yields falling faster than long term yields causes the yield curve to steepen, which indicates that investors are expecting rate cuts. This scenario, also known as bull steepening, is favourable for shorter duration debt funds. The current bull steepening scenario is also favorable for longer duration funds because yields are attractive. Investors with sufficiently long investment horizon can benefit from attractive yields and price appreciation due to declining yields.
Gold prices continued to be firm rising to Rs 95,000 (per 10 gram) level. Silver also shined brightly rising 3.5% in May to Rs 97,000 levels. Rising precious metal prices indicate nervous risk sentiments.
Widening US fiscal deficit and rising bond yields in the US can be headwinds for emerging market equities, including India. Despite the short-term headwinds India will continue to be the fastest growing economy in FY 2026 with projected GDP growth rate of 6.5%. According to the Finance Commission, India is expected to become the third largest economy by 2030. India is largely a domestic consumption driven economy. The impact of trade wars on Indian economic growth will be relatively less compared to export-oriented economy like China. This may put India in a favourable position in the EM basket for FIIs, especially in context of the current trade situation between United States and China. Valuations have come down significantly off their peaks across all market cap segments. There are attractive investment opportunities at current levels. Investors can use volatility to tactically add equity to their asset allocation at attractive valuations by buying on dips. However, in times of economic uncertainties, you should focus on quality and asset allocation.
Assuring you of our best services.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
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