Despite muted expectations, while some segments of the mid and small-cap market may continue to show relatively high valuations, recent market corrections are expected to make the overall market environment more attractive. Geopolitical developments, ongoing tariff negotiations, and global economic conditions could remain significant factors influencing investor sentiment. Additionally, the market is expected to gradually recognize the positive impact of recent tax cuts on the consumer sector, alongside the supportive stance from the Reserve Bank of India's policy adjustments. Corporate earnings growth, particularly in financials and consumer goods sectors, will be key drivers shaping market performance in the quarters ahead.
In the medium term, select midcap and small cap companies with strong fundamentals could perform better than broader set. Sectors such as infrastructure, capital goods, green energy, defence, banking & NBFCs are expected to outgrow the market expectations. The Indian government's continued emphasis on capital expenditure, particularly in transportation, logistics, and urban infrastructure development, is expected to drive demand across capital goods and construction-related industries.
In the near-term market maybe impacted by geopolitical tensions, fluctuations in global interest rates, elevated commodity prices, and potential currency volatility. India has demonstrated remarkable resilience in navigating external shocks but escalation of conflicts in certain global regions, uncertainty around U.S. Federal Reserve policy decisions, and movements in crude oil and the U.S. dollar index are factors that could trigger intermittent volatility in the Indian equity markets. Despite these headwinds, India remains a favoured destination for foreign portfolio investors (FPIs) due to its policy continuity, macroeconomic stability, and ongoing structural reforms. The government's continued focus on fiscal discipline, along with the Reserve Bank of India's calibrated monetary approach, has enhanced investor confidence.
Moreover, India's large domestic consumption base, strong corporate earnings trajectory, and a proactive push toward self-reliance and industrial diversification make it increasingly attractive in a globally rebalancing capital allocation landscape. Even global turbulence, foreign capital inflows have remained steady, often returning quickly after brief risk-off periods. This underscores India's positioning as a key emerging market investment destination.
The Indian equity market remains one of the preferred investment destinations on back of improving macroeconomic environment, stable currency and improving corporate performance. We expect the market to remain structurally positive in the long term and short-term volatility could be seen as an opportunity by the investor to increase exposure to Indian equities. A strategy to accumulate units via SIP route could also help investors even our market volatility in the near future.
Debt Market Outlook
With stable inflation and above normal monsoon forecasts keeping food prices controlled, there is more than an even possibility that the RBI will reduce rates in June 2025.
Low oil prices, stable rupee, robust tax collections, and healthy domestic consumption should support continued economic expansion.
Source: RBI, Bloomberg, CCIL, MOSPI (as on 30th May 2025)