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Market Watch

Market Watch

Equity Market Overview – February 2025





Domestic Equity Market Update

  • Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex ended lower by 5.55% (MoM) and Nifty 50 ended lower by 5.89% (MoM). While the BSE Midcap index ended lower by 10.45%(MoM), BSE Small cap index ended lower by 13.76% (MoM).
  • In terms of BSE sectoral indices, most of the sectors ended on a negative note. Capital Goods, Infrastructure, Realty, IT and Power were the laggards during the month.
  • During the month, FPIs were net sellers in equities to the tune of Rs 346 bn. (Data as on 27th February). 
  • Domestic equity markets ended the month on a negative note as investors’ sentiment was negatively impacted after the US President has threatened to impose a 25% tariff on imports from the European Union, accusing the bloc of being formed to "undermine" the US. Sentiment was also dampened by the US Fed’s statement that it is “not in a hurry to lower interest rates” and intends to “pause rate cuts to assess further progress in inflation”. Weak corporate earnings, global trade uncertainties and a continuous selloff by the foreign institutional investors, further widened the losses.

    ​​​​​​​Global Market Updates
  • US equites ended the month on a negative note following the announcement by the US President that the previously suspended 25% tariffs on imports from Mexico and Canada, as well as the 10% tariff on imports from China, will be implemented on March 04, 2025. The report released by the University of Michigan also affected the market sentiment, which indicated that consumer sentiment in the US had worsened significantly more than earlier projections for February 2025. Market sentiment was further hit by indications that the US Federal Reserve is likely to keep interest rates on hold for some time.
  • European equity markets ended on a positive note as investors indulged in some hectic buying at several counters, reacting to quarterly earnings updates, and the Bank of England's decision to lower interest rates. Additionally, the market rose following the US President’s decision to pause tariffs on Canada and Mexico for a month and a slight alleviation of geopolitical tensions after Ukraine and the US reached an agreement on a minerals deal.
  • Brent crude price corrected from USD 76.8 per barrel to USD 72.8 per barrel due to worries about global economic growth and uncertainty about the outlook for oil demand weighing on the commodity's prices, on concerns about the outlook for demand and recent data showing a jump in crude inventories. Prices fell further amid uncertainty over the impact of the US President's tariff policies on global growth and fuel demand.

    ​​​​​​​Most of the Domestic Macro data points showed a strong picture
  • According to data shared by MoSPI, India’s real GDP growth for Q3 FY25 was 6.2% YoY. The rise comes after GDP growth fell to a seven-quarter low of 5.4% YoY in Q2 FY25. As a result, the government has revised its full-year real GDP growth projection for FY25 to 6.5% YoY.
  • According to Moody's Analytics, India's growth will slow to 6.4% YoY in CY25, from 6.6% YoY in CY24, as new US tariffs and softening global demand weigh on exports.
  • As per PWC, India's economic growth is projected to moderate to 6.4% YoY in FY25 due to weak urban consumption, high food inflation, and global uncertainties.
  • The HSBC final India Services Purchasing Managers' (PMI) Index, compiled by S&P Global, fell to 56.5 in January 2025 from 59.3 in December 2024, lower than a preliminary estimate of 56.8.
  • As per S&P Global, Indian goods producers kicked off 2025 on a robust note as Manufacturing Purchasing Managers’ Index (PMI) rose to 57.7 in January 2025, recovering sharply from 12-month low of 56.4 in the previous month.
  • As per RBI data, credit card spends grew by 10.8% YoY to Rs 1.84 trillion in January 2025. Per card spend in the industry stood at Rs 16,910, up 1.09% YoY.
  • According to the Finance Ministry, public sector banks (PSBs) have posted highest-ever net profit of Rs 1.29 trillion in the April-December period of FY25, marking an increase of 31.3% YoY.
  • According to RBI data, the All-India House Price Index (HPI) increased 3.1% YoY in Q3 FY25 as compared to 4.3% YoY growth in in Q2 FY25 and 3.8% YoY growth in Q3 FY24.
  • As per data from the Finance Ministry, the number of UPI transactions in January 2025 surpassed 16.99 bn and the value exceeded Rs 23.48 trillion, marking the highest number recorded in any month.
  • According to the commerce ministry data, India's exports to the US rose by 39% YoY to USD 8.44 bn in January 2025, while imports grew by 33.46% YoY to USD 3.57 bn.
  • According to MoSPI data, the Index of Industrial Production (IIP) grew by 3.21% YoY in December 2024, down from 4.96% YoY in November 2024.
  • As per data from the Union Budget 2025-26, Capital Expenditure has been pegged at Rs 11.21 trillion in FY26, a growth of around 10% YoY over the FY25 revised estimates (RE) of Rs 10.18 trillion.
  • SEBI has paved the way for the launch of Specialised Investment Funds (SIFs) from April 2025. The pure equity products include equity long-short funds, equity ex-top 100 long-short funds, and sector rotation long-short funds. The minimum investment size of these funds is Rs 1 mn.
  • According to data released by the Goods and Services Tax Network (GSTN) portal, e-way bills generated by businesses for transporting goods within and across states, grew 23.1% YoY to reach a record 118.1 mn in January 2025.
  • According to ICRA, Indian companies are likely to clock 7-8% YoY revenue growth during Q4 FY25, led by revival in rural demand and uptick in government spending.
  • According to ICRA, Passenger Vehicle sales volume in India is expected to grow at a moderate pace of 4-7% in FY26 with most demand drivers remaining neutral or favourable.
  • According to Nomura, India's passenger vehicle (PV) industry is expected to witness lower growth in FY25, with forecasts indicating a 1.5% YoY growth due to subdued demand.
  • As per data from FADA, vehicle registrations, a proxy for retail sales, increased by 6.6% YoY to 2.29 mn units in January 2025.
  • As per Moody’s Ratings, India's power sector will need an annual investment between Rs 4.5 trillion to Rs 6.4 trillion (USD 53 bn to USD 76 bn) of investment until FY35, roughly USD 700 bn investment over the next 10 years, to achieve its 2070 net-zero pledge.
  • According to ICRA, major auto component firms are likely to invest Rs 250-300 bn in FY26 for capacity expansion and localization, including for Electric Vehicle (EV) parts. The revenue growth for the industry is expected to ease to 7-9% YoY in FY25 and to 8-10% in FY26, down from 14% in FY24.
  • As per a report by Bain & Company and Nasscom, India is set to become a high-income country by 2047 with a projected GDP of USD 23 trillion to USD 35 trillion. The services sector is projected to account for 60%, while manufacturing will account for 32% of India's GDP by 2047.
  • According to a BCG report, India's total trade is expected to grow at a Compound Annual Growth Rate (CAGR) of 6.4% YoY, reaching USD 1.8 trillion annually through 2033.
  • According to a report by Bain & Company in collaboration with Indian pharmaceutical bodies, India’s pharma exports are expected to grow from approximately USD 27 bn in 2023 to USD 65 bn by 2030.
  • According to a report by Anarock and ETRetail, the market size of India's e-commerce sector is estimated to jump more than four-fold to USD 550 bn by 2035, growing at a CAGR of 15% YoY from USD 125 bn in 2024.

    ​​​​​​​Outlook & Investment Strategy
  • Going forward, the Indian equity market is likely to be driven by movement in the US Dollar index, improvement in consumption demand, FPI/DII flows, tariff announcement by Donald Trump, improvement in liquidity conditions supported by the RBI. With the budget announcing about Rs 1 trillion worth of consumption supportive tax cuts, the market participants expect consumption demand to improve steadily in FY26. The RBI has been coming out with measures to boost system liquidity to help aid growth. While the current liquidity deficit is large, as per market participants, continuous effort from the central bank on the liquidity support front is required. A marginally lower than expected GDP print was witnessed in Q3 FY25 on back of strong government spending and an uptick in rural recovery, while Capex and Manufacturing activities decelerated. Going forward, pick up in private/Government capex, good export performance should aid well for Q4 GDP print.
  • In US, the Trump Administration has levied tariffs on key partners and is threatening to levy it on more countries. Some such countries have also announced reciprocal tariffs. The actual implementation of these tariffs may lead to deterioration in global trade and global growth.
  • The recent macro fundamentals of the domestic economy have seen volatility. Weak external conditions have led to INR depreciating to all-time lows. On the other hand, calibrated fiscal consolidation, stable private consumption and growth support coming through from the RBI should help the economic growth in the medium term.
  • The quarterly earnings for Q3 FY25 has ended on a mixed note, with some IT companies reporting steady numbers, but the banking sector is suggesting rising NPA impulses. Telecom, Power, Realty and Chemical/Fertilizer have also delivered stable earnings comparatively. Numbers in Auto Ancillary, Metal and Oil & Gas remains muted. During/post the result season, the broad indices have seen further cuts in earnings estimates, which have weighed down the equity markets.

    With the recent correction, valuations in most segments of the market have corrected, while earning growth remains stable. In terms of deployment strategy, we continue to maintain our investment deployment strategy of 50% Lumpsum and 50% staggered over the next 5-6 months. From an Equity Mutual Fund perspective, investors could look at investing in Diversified funds, Hybrid equity funds, Business cycle funds and doing SIPs in Smallcap/Midcap funds in line with their risk profile and product suitability from a 2-3 years’ time horizon.




Debt market overview for the month of February 2025





Domestic banking system liquidity remained in deficit during the month. Banking system liquidity as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF) stood at a daily average deficit of ~Rs 1.67 trillion in February 2025 as against a daily average deficit of ~Rs 2.04 bn in the previous month. The call money market traded in the range of ~5.75-6.50% during the month.

Domestic G-sec yields closed higher in February 2025, and the 10-year benchmark, 6.79% G-Sec 2034 bond, ended at 6.72%, compared to the previous month’s close of 6.69%. Indian G-sec yields rose as market participants were disappointed that the RBI's first rate cut by 25 bps to 6.25% in nearly five years was not accompanied with any additional steps to boost banking system liquidity. Yields rose further following a heavy debt supply from states, a plunge in the INR, and the weaker-than-expected demand for the central government's last debt sale for FY25. The rise in yields was also extended due to a spike in US Treasury yields after data showed that the CPI inflation increased both on a monthly and yearly basis in Jan 2025. However, losses were restricted as market participants welcomed the RBI's move to double the amount of its OMO purchases for a total of Rs 800 bn during the month against the earlier notified amount of Rs 400 bn. Sentiment was boosted further following the domestic retail inflation print of January 2025 which was marginally below estimates.

Inflation in the US and Europe rose marginally and continues to remain above their central banks’ target of 2%. Consumer Price Inflation in the US accelerated to 3.0% YoY in January 2025 from 2.9% YoY in December 2024. Core inflation also increased to 3.3% YoY from 3.2% YoY in December 2024. The US Fed decided to maintain the target range for the federal funds rate at 4.25-4.50% in support of its dual goals of maximum employment and inflation at the rate of 2% YoY over the longer run. The US trade deficit increased to USD 98.4 bn in December 2024 from USD 78.2 bn in November 2024. The US GDP rose by 2.3% YoY in Q4 CY24, reflecting a notable slowdown compared to the 3.1% YoY growth seen in the Q3 CY24. US President Donald Trump announced a new trade policy under which the US will charge a reciprocal tariff based on what other nations charge them, no more, no less. As per data from Eurostat, the Eurozone inflation rose slightly to 2.5% YoY in January 2025 from 2.4% YoY in December 2024, driven by higher energy prices. Core inflation held steady at 2.7% in January 2025. The Euro area GDP grew by revised 0.1% QoQ in Q4 CY24 as against initial estimates of a flat growth. On a yearly basis, GDP growth held steady at 0.9% YoY in Q4 CY24, as initially estimated. The Bank of England lowered its key interest rate by 25 bps to 4.50% from 4.75%. China’s National Bureau of Statistics said that Consumer Prices in China increased by 0.5% in January 2025, exceeding expectations for a rise of 0.4% MoM in December 2024 following the 0.1% MoM increase in December 2024. The People's Bank of China left its one-year loan prime rate unchanged at 3.10%. Likewise, the five-year LPR, the benchmark for mortgage rates, was retained at 3.60%. The decision was in line with expectations.

Domestically, RBI’s Monetary Policy Committee decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 bps to 6.25% with immediate effect. Consequently, the Standing Deposit Facility (SDF) rate was adjusted to 6.00% and the Marginal Standing Facility (MSF) rate and the Bank Rate to 6.50%. The MPC also decided to continue with the ‘neutral’ monetary policy stance and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth. Retail inflation in India eased as the Consumer Price Index (CPI) fell to a five-month low of 4.31% YoY in January 2025 from 5.22% YoY in December 2024. The easing came on the back of lower food prices, supported by healthy kharif crop yields. India’s Wholesale Price Index (WPI) inflation eased to 2.31% YoY in January 2025, down from 2.37% YoY in December 2024. As per CGA data, the Centre's fiscal deficit touched 74.5% of the annual target at the end of January 2025. The Net Direct Tax Collection grew 14.7% YoY to Rs 17.8 trillion during April 1 to February 10 of FY25. Of this, non-corporate tax collection grew 20.9% YoY to Rs 9.48 trillion. Gross GST collections in India rose by 9.1% YoY to Rs 1.84 trillion in February 2025, compared to Rs. 1.68 trillion collected during February 2024, boosted by domestic consumption and indicating potential economic revival. India’s merchandise trade deficit widened to nearly USD 23 bn in January 2025, compared with USD 16.5 bn in January 2024. According to the Periodic Labour Force Survey, unemployment rate in urban areas during Q3 FY25 remained unchanged QoQ at 6.4%.


While the liquidity continued to remain in deficit during the month, the RBI took further measures to tackle the same. Alongside daily VRR, the RBI conducted USD 10 bn worth of USD-INR buy-sell swap auction for three years which received bids worth USD 16.23 bn, reflecting robust demand. Retail inflation in India eased as the Consumer Price Index (CPI) fell to a five-month low of 4.31% YoY in January 2025 from 5.22% YoY in December 2024. The easing came on the back of lower food prices, supported by healthy kharif crop yields. Issues on the external front, in terms of rising trade deficit, geopolitics and risk emanating from US tariff wars remain a key challenge for the RBI to negotiate with in the medium term and can have implication on the depth of the ongoing policy rate cut cycle. In the US, the Fed kept policy rates unchanged, reiterating a "careful approach" in considering additional adjustments to the monetary policy stance. Going forward, policy measures announced by the Trump Administration would be a key factor that would drive the policy rates there. The GDP for Q3 FY25 came in marginally lower than market expectations at 6.2% YoY. Lower than expected GDP growth could allow the RBI to further bring in growth supportive measures.



With the recent cut in policy rate, along with favorable demand-supply dynamics of Indian G-Secs, and favourable CPI inflation, we may see structurally lower interest rates over the long term. Improvement in liquidity conditions basis RBI measures could compress corporate bond yields at the shorter end in the medium term. With this backdrop, the inverted corporate bond yield curve may normalize, making the case for investment into corporate bonds at the 1-4-years segment of the curve. Further policy rate cuts may bring about tactical opportunities in the Long Duration products. Hence, investors can look at Corporate Bond Funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors can look at Dynamic Bond Funds. For a horizon of 3 months and above, investors can consider Arbitrage Funds or Money Market Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors can also look at Multi-asset allocation funds for a horizon of 36 months and above. Investors should invest in line with their risk profile and product suitability.


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