Consumption, financials, and infra lead India’s tactical playbook for H2 2025: Vinay Jaising

Despite geopolitical tensions and a recent downgrade of the U.S. credit rating by Moody’s, global equity markets continue to defy expectations. Most indices, excluding Europe, have posted gains of 1–2% over the past month, with many trading near record highs. Risk-on assets have led the charge—US tech giants dubbed the “Magnificent Seven,” along with Indian mid-cap and small-cap stocks, have surged by 15%, 17%, and 23% respectively.

Source: Bloomberg data as on 17th June’25

This rally comes in the face of 2 significant headwinds: unrest in Iran and Israel, and concerns over US fiscal stability. Yet, global interest rates up to 10 years have remained largely stable, with India standing out due to a notable decline in both short- and long-term yields.

The resilience of markets suggests that investors are looking beyond short-term risks and focusing on structural growth stories.

Global tailwinds and India’s outperformance

A major catalyst for global sentiment has been US President Donald Trump’s decision to pause reciprocal tariffs and resume trade talks with the UK and China. This move has eased trade tensions and boosted investor confidence across markets.India has emerged as a standout performer in this environment. Over the past three months, Indian equities have outpaced global peers, supported by a series of government reforms, central bank interventions, and a strengthening rupee. These factors have created a favourable macroeconomic backdrop that investors are increasingly recognizing.

Domestic drivers: Liquidity, capex, and policy support

India’s market resilience is underpinned by several key developments:

1. Capex revival

After a subdued period from April to November 2024, the Indian government significantly ramped up capital expenditure. March 2025 saw a record ₹2.4 trillion in capex—the highest ever in a single month and 25% more than the total spent in FY2014. This surge reflects a renewed commitment to infrastructure development and long-term growth.

2. Banking liquidity and rate cuts

The Reserve Bank of India (RBI) has injected ₹6–7 trillion into the financial system through USD/INR swaps, CRR cuts, OMOs, and long-term repo auctions. This has transformed a ₹3 trillion liquidity deficit into a ₹6 trillion surplus. A 50-basis point rate cut has narrowed the India–U.S. 10-year bond yield spread from over 500 bps five years ago to under 190 bps today. These measures are expected to support credit growth and stimulate investment.

3. Return of foreign institutional investors (FIIs)

After $28.7 billion in net outflows between October 2024 and March 2025, FIIs have returned with $2.4 billion in inflows during April and May. With FII ownership at a decade-low of ~16%, there is significant room for further upside. A stable rupee and improving macro indicators are drawing global investors back to Indian markets.

4. Earnings momentum

Corporate earnings for Q4FY2025 have exceeded expectations, with 7–8% year-on-year growth in both revenue and profit. Earnings downgrades for FY2026 have been limited, and analysts anticipate a positive inflection in the coming quarters.

One can argue the steady Indian’ economic growth rate, its strong balance sheet, falling inflation and stable earnings growth environment have all made a case for reduction of Indian’s equity risk premium and should support inflows.

Challenges to monitor

1. Slowing consumption

Retail consumption growth has dropped from 28–29% in mid-2024 to below 9%. This slowdown raises concerns about demand sustainability and credit quality. To counter this, the government announced 3–5% tax cuts for middle-income earners (₹15–25 lakh), expected to boost disposable income and revive consumer spending by Q3FY2026.

2. Valuation concerns

Markets are near peak valuations. The large-cap index is trading at a five-year forward P/E of 20x, while mid-caps and small-caps are at premiums of 30% and 15% respectively. These elevated valuations suggest that investors should adopt a more selective and tactical approach to equity allocation.

Tactical opportunities ahead

India’s macroeconomic environment is improving, supported by forex stability, ample liquidity, and a revival in capital expenditure. However, elevated valuations and global geopolitical risks remain key variables that could influence market direction.

In this context, investors may consider focusing on sectors and themes that offer structural growth and are well-positioned to benefit from current trends:

Consumption: Poised to rebound post-tax cuts, especially in discretionary and FMCG segments.

Financials: Particularly housing finance and capital markets, which stand to gain from increased liquidity and credit growth.

Capex-linked sectors: Capital goods and infrastructure are likely to benefit from government spending.

Make in India themes: Pharmaceuticals and specialty chemicals continue to offer long-term growth potential driven by domestic demand and export opportunities.

(The author Vinay Jaising, is CIO and Head – Equity Advisory, ASK Private Wealth)

Analyst Disclaimer: The information and opinion expressed herein above do not constitute investment advice to buy, sell, hold any securities, kindly consult appropriate SEBI registered intermediary before making investment related decisions. The opinions expressed above are personal views of the author. The views of the author may also differ from the views expressed by any other author of ASK Asset and Wealth Management.