Regaining Lost Ground: A steady rebound is bringing back wealth lost during the recent downturn.

Markets rarely follow a smooth path, and the temptation to chase every headline can lead to costly mistakes. The key, as always, lies in understanding the true value of your investments and holding steady through the noise. India’s economy is quietly strengthening, supported by solid fundamentals and a supportive policy backdrop. While short-term volatility will continue, those who focus on quality and patience tend to come out ahead. In this outlook, we’ll walk through what’s driving markets today, what to watch for, and why a thoughtful, long-term approach remains your best guide.

Macroeconomy

1. Stable Margins Amid Market Weakness:Despite the broader market correction over the past eight months, India Inc. has demonstrated operational resilience. Manufacturing companies, in particular, have managed to sustain or even improve their operating margins through disciplined cost management and supply chain optimization. This signals that earnings power remains intact despite the external volatility.

2. Economic Reacceleration in Motion:April’s GST collections touched a new peak at ₹2.1 lakh crore (12.6% YoY growth), signaling broad-based consumption recovery and deeper tax compliance. The Manufacturing PMI rising above 56 indicates strong factory output, while services activity remains a key growth pillar. Exports, though still uneven, are showing early signs of stabilizing—suggesting India could benefit from both domestic and global tailwinds in the second half of the year.

3. Inflation Remains Well-Anchored:Headline CPI inflation continues to stay within the RBI’s comfort band, supported by moderating global commodity prices and improved food supply chains. The INR has held steady relative to the USD, demonstrating India’s external resilience—especially significant considering earlier bouts of foreign outflows and global risk-off sentiment.

Implication for Investors:With macro stability largely intact and green shoots of growth re-emerging, India appears better placed than many emerging peers. The macro setup supports a pro-growth policy stance, setting the stage for longer-term equity and debt outperformance.

Indian Equity Market

1. Institutional Flows Regain Momentum:Foreign portfolio investors (FPIs) turned net buyers with ₹36,662 Cr inflows from April to May 16, 2025—reflecting renewed conviction in India's medium-term outlook. At the same time, domestic institutional investors (DIIs) deployed ₹48,312 Cr, particularly into large caps during the correction. This dual engine of institutional participation is helping rebuild market confidence.

2. Valuations Now in the ‘Fair’ Zone:Following a sharp rebound, Nifty 50 valuations have normalized into the 'fair' band. This suggests that while immediate downside may be limited, further gains could be more stock- and earnings-specific rather than broad-based. Mid and small caps still trade above historical averages—selectivity and quality filters are crucial here, and your folio already reflects this cautious optimism.

3. From Events to Earnings:With elections and major central bank meetings behind us, the market’s focus has pivoted decisively to fundamentals. Consensus expects Nifty earnings to grow at a 14% CAGR over FY25–27, driven by financials, industrials, and consumer-facing sectors. The coming quarters will be crucial in separating durable compounders from short-term momentum plays.

4. Sector Watch:

• Financials: Improving credit growth and stable asset quality support profitability.

• Capital Goods & Infrastructure: Benefiting from government-led capex and private revival.

• Consumer Discretionary: Watchful eye on rural demand and volume recovery.

• IT: Margins stabilizing; deal wins in AI, cloud, and automation offer medium-term promise.

Implication for Investors:A fair-valued large cap space combined with quality stock picking in mid and small caps presents a solid base for compounding. Aligning portfolios with earnings visibility, capital efficiency, and reasonable valuations remains the north star.

Indian Debt Market

1. FPI Flows to Bonds Resume:After months of muted activity, FPIs returned to Indian bonds in March and April, picking up pace as India’s inclusion in global bond indices nears. This reflects growing confidence in India's stable inflation trajectory and improving fiscal metrics.

2. Falling Yields, Rising Opportunities:G-Sec yields have begun to drift lower amid softening inflation and a cautious RBI. A dovish tilt combined with controlled borrowing and robust demand from long-term domestic institutions (like EPFO, LIC, and banks) is creating a supportive backdrop for bond prices.

3. Liquidity Management Adds Momentum:The RBI’s proactive liquidity infusions and open market operations have brought stability to short-term rates and eased market stress. This supports steady accrual income and enhances the return potential for existing debt portfolios—especially in duration-sensitive strategies.

4. Credit Space Finding Its Footing:Spreads on high-quality AAA and AA papers are stable, while selective opportunities in A-rated issuers are emerging with better compensation for risk. However, investor discipline remains key—focus should remain on manager quality and balance sheet strength.

Implication for Investors:Debt portfolios now stand at an attractive starting point for those seeking stable, tax-efficient income. With policy support, improving real yields, and moderating inflation, medium- to long-duration bonds and dynamic strategies are well-positioned to perform.

Final Thought: Stay the Course, But Stay Selective

India’s structural story remains intact—even more so now with macro and policy tailwinds aligning. In the short run, markets will continue to oscillate between optimism and caution. But for investors who remain focused on long-term value, fundamentals, and quality, this period can serve as a base for the next leg of compounding.

While headlines will keep shifting, portfolios rooted in quality, thoughtful diversification, and periodic review are best placed to weather the noise and capture long-term upside. In the following sections, we’ll walk through tactical recommendations and folio-specific insights to help guide your strategy ahead.

Disclaimer

The information, data or analysis does not constitute investment advice or as an offer or solicitation of an offer to purchase or subscribe for any investment or a recommendation and is meant for your personal information only and suggests a proposition which does not guarantee any returns. Baker Street Fintech Pvt. Ltd (hereinafter referred as BSFL) or any of its affiliates is not soliciting any action based upon it. This information, including the data, or analysis provided herein is neither intended to aid in decision making for legal, financial or other consulting questions, nor should it be the basis of any investment or other decisions. The historical performance presented in this document is not indicative of and should not be construed as being indicative of or otherwise used as a proxy for future or specific investments. The relevant product offering documents should be read for further details.