Outlook for the Month of July’25

Economy Review

The key events in the month were –

1. Domestic Factors –

a) Trade Deficit – India’s trade deficit for June’25 declined to $18.8bn from $21.9bn in May’25, due to fall in imports. Imports declined 3.7% yoy to $53.9bn whereas exports fell 0.1% yoy to $35.1bn

b) GST collections – GST collections increased by 7.5% yoy to Rs 1.96 tn in July’25.

c) Manufacturing PMI – India's manufacturing PMI hit a 16-month high of 59.1 in July’25, fueled by robust order growth and output.

d) IMF – The IMF raised India’s FY2026 GDP growth outlook to 6.4% from 6.2%.

2. Global Factors –

a) Federal Reserve – The US FED kept the policy rates unchanged from 4.25-4.50%.

b) US Tariffs – The US imposed 25% tariffs on Indian exports, while existing exemptions remained in place.

c) UK Trade Deal – India and the UK signed a Comprehensive Economic and Trade Agreement (CETA) aiming to boost annual bilateral trade.

d) Crude Oil – Renewed sanction risk on Russian oil and refined products led to ~8.5% increase in Brent crude oil prices in the month of July’25.

Domestic Macro Economic Data

Inflation – India’s CPI Inflation eased to 2.1% in June’25, lowest since February’19, due to lower food inflation. India’s WPI inflation fell to -0.1% in June’25 due to low food and fuel inflation.

Outlook for Equities
Nifty fell 2.9% in July’25 as US tariff saga continued. Mid-cap and small-cap indices underperformed large-caps and were down 4% and 6%, respectively. The Indian equity market continued to underperform global equity markets due to tariff announced by US and soft guidance by corporates in Q1FY26.


The US imposed 25% tariffs on Indian exports. India and the UK signed a Comprehensive Economic and Trade Agreement (CETA) aiming to boost annual bilateral trade. On the domestic front, India’s trade deficit for June’25 declined to $18.8bn from $21.9bn in May’25. India's manufacturing PMI hit a 16-month high of 59.1 in July’25. FIIs sold during the month of July’25 ($2.2bn) whereas DIIs bought $7.1bn of equities in the month of July’25.


We expect an economic revival to play out in the second half of this calendar year due to normal monsoon and consumption boost. We expect Nifty earnings to grow at ~12-13% CAGR over the medium term. Nifty is currently trading at ~19x FY27e P/E. Investors can continue to invest in equities from a medium to long-term perspective.

Outlook for Debt
July month saw several measures by RBI to keep banking system liquidity in a reasonable range as weighted average call rate moved below the lower band of liquidity adjustment facility corridor. RBI undertook two way measures to add and reduce liquidity in the system in an effort to keep weighted average call rate near the repo rate. Durable system liquidity hovered near Rs 5tn during the month. Till August 1, cumulative rainfall was 6% above long-term average while weekly rainfall was 8% above long-term average. Rainfall was above-normal in north, west and central India while below-normal in east and south India. As of July’25, the total kharif acreage was 4% higher than the same period last year.

Center’s fiscal deficit in Q1FY26 picked up to 18% of FY2026 budget estimates, driven by tepid tax collection, higher interest payments and strong pace in capex. State’s fiscal deficit was at 12% of budgeted target with modest revenue growth balanced by restrained spending. June’25 CPI inflation moderated to 2.1%, led by a sharp decline in prices of vegetables, pulses, cereals, sugar and spices. Core inflation inched up to 4.4%. June’25 WPI inflation also came in softer at -0.1% YoY. Goods trade deficit in June’25 narrowed from May’25 levels to US$18.8 bn. The services trade surplus in June’25 at US$15.3 bn marginally moderated from May’s upward revised print of US$15.8 bn. Industrial production (IIP) growth moderated to 1.5% YoY in June’25, for Q1 FY26, IIP growth averaged at 2% lower than 5.5% recorded same time last fiscal. While infrastructure and capital goods production growth held up, electricity and mining production growth moderated in part due to early onset of monsoons and excess rains. From the consumer goods production side, consumer durables growth on average held up while consumer non-durables production remained in contraction zone throughout the quarter.

Federal Reserve in the FOMC kept the Federal Fund rate unchanged within the 4.25-4.5% range in a 9-2 majority, as expectations of rising inflation due to reciprocal tariff continues. US nonfarm payroll data came much weaker than expected with sharp downward revisions to previous data. This has raised chatter of an upto 50bps rate cut by FOMC in September’25. Bank of Japan in an unanimous decision kept their policy rates unchanged and The European Central Bank (ECB) kept interest rates unchanged as the focus remains on ensuring stabilization of inflation. Brent oil prices briefly touched above $70/bbl on anticipation of sanctions on Russian oil but did not break the level as OPEC+ has pledged for further output hikes.

Markets in the near term await RBI MPC in August’25, unveiling of liquidity management framework from RBI and future trajectory of headline CPI numbers as well as indicators on growth. Additionally, progress of monsoon, conclusion of further negotiations on trade deals, oil prices, FPI flows and currency movements are also crucial. Globally US data will be watched for further cues on rate direction. Benchmark 10 year Gsec closed at 6.37% on 31st July’25, 5 bps higher during the month. 10 year Gsec yield is likely to be in a range of 6.20%-6.40% in the near term. Spread of 10 year Gsec with corporate bonds is nearly 60 bps and likely to remain between 55-65 bps.