Equity Market Outlook
Indian equity markets are currently navigating a challenging phase, shaped by global uncertainties and fresh trade disruptions. After enduring significant headwinds in August, sentiment remains cautious yet constructive.
The imposition of a 50% US tariff on Indian goods, alongside moderate earnings growth and higher bond yields, pressured valuations and weighed on investor confidence. On the positive side, the government's move to reduce GST rates and streamline them into two slabs is being viewed as a strong domestic catalyst, expected to stimulate consumption, improve manufacturing competitiveness, and enhance corporate margins, particularly for sectors such as FMCG, consumer durables, and automobiles. Adding to the optimism, Q1 FY26 GDP growth of 7.8% YoY, well above consensus estimates, and a 17-year high manufacturing PMI of 59.3, reaffirmed the strength of India's underlying domestic growth momentum.
Flows remain divided, with FIIs net selling Rs. 46,903 crore amid tariff concerns and rich valuations, while DIIs absorbed the supply with net inflows of Rs. 94,829 crore, supported by steady retail participation and a positive advance/decline ratio (1,945/862), which led to broad market strength, especially in mid- and small-cap segments. The India VIX slipping below 12.5 indicates reduced near-term volatility. Globally, softer US inflation has lifted expectations of a Fed rate cut, and Eurozone PMI returning to expansion further boosted risk appetite, benefitting Indian IT and export-oriented stocks.
In the near term, markets are likely to trade range-bound with a positive bias, supported by GST reforms, festive demand, and resilient domestic flows, even as tariff negotiations with the US remain the biggest swing factor. A resolution could unlock upside potential and drive Nifty towards 26,000–26,500 by year-end, while prolonged tariff pressures could weigh on export-heavy sectors. Corporate profit growth is expected to sustain in low double digits, led by BFSI, autos, consumption, and selective industrial plays, with valuations finding support at lower levels.
Looking ahead, India's structural growth story remains intact. Healthy bank and government balance sheets, the China+1 manufacturing shift, infrastructure and renewable energy investments, and deepening domestic investor participation all provide multi-year tailwinds. While near-term volatility cannot be ruled out, the long-term outlook remains positive, with equities expected to deliver 12%–16% CAGR over the next 3–5 years, making buy-on-dips and diversified allocations the preferred strategy.

Debt Market Outlook
India's debt market reflects a phase of measured optimism amid steady macro fundamentals and evolving policy signals. The RBI is expected to keep its policy rate unchanged at 5.50% in the upcoming policy review, supported by contained inflation and moderating growth indicators. However, yields have edged higher, with the 10-year G-Sec rising to 6.59% from 6.38% last month. The steepening of the curve has been driven by supply pressures at the longer end, with the 10–30 year G-Sec spread widening to ~70 bps (from ~30 bps in February), muted bank demand, and increased state borrowing, which has pushed SDL spreads higher by 15–20 bps.
Liquidity remains comfortable, aided by RBI's Variable Rates Reverse Repo (VRRR) operations, but fiscal concerns are re-emerging. GST rationalisation measures are expected to lower indirect tax revenues by 20–30 bps, while US tariffs on Indian exports could exert pressure on both government collections and nominal GDP growth, adding to long-end supply anxiety. Participation from PSU banks in longer-tenure bonds has slowed due to portfolio constraints, and spreads between AAA corporates and G-Secs have expanded by 20–25 bps as investors remain selective amid heightened policy and fiscal risks. On the global front, foreign portfolio investors (FPIs) have provided strong support, with net inflows of over ₹13,000 Cr into Indian debt in August 2025. Expectations of US Fed rate cuts (~50–80 bps by March 2026) could further bolster investor appetite and support flows into domestic debt markets, partially offsetting these domestic headwinds.
Looking ahead, the outlook remains positive but cautious. While the RBI's neutral stance leaves room for further rate easing if growth slows, rising fiscal pressures, elevated long-end spreads, and external trade uncertainties may keep volatility high. Investors should focus on short-to-medium duration strategies - 1–4 years for short-term allocation and 4–7 years for medium-term positioning - balancing yield opportunities with prudent risk management. Government securities continue to offer a stable core, while selective exposure to AAA-rated corporate bonds can enhance portfolio returns. Staying agile and closely tracking both domestic and global developments will be critical in navigating the current environment.