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While early Q1 FY26 showed subdued demand in numerous sectors due to economic slowdown and geopolitical tensions, India has displayed resilience in Q2. This is backed by strong macroeconomic factors, helpful RBI measures, and better foreign investor inflows.
Equity market overview and outlook
Indian equity markets showed strong performance with the Sensex and Nifty 50 indices rising 8.0% and 8.5%. RBI rate cuts, robust capital inflows, and healthy domestic macro indicators support this incredible growth.
Large-cap, high-quality stocks look safer and more rewarding at current valuations compared to small and mid caps. Moreover, domestic sectors which are largely unaffected by the reciprocal taxes are set to benefit, while export-heavy sectors may stay cautious until tax impacts are clearer.
The Indian equity market has rebounded strongly since March 2025 and is expected to benefit from long-term growth prospects due to favourable economic factors.
Debt market overview and outlook
The Indian bond market in the Q2 FY26 has stayed quite stable in the midst of geopolitical tensions and oil price volatility. RBI's 100 basis points repo rate cut and CRR reduction lowered the yield, but recent policy changes and stronger growth indicate that easing may end soon.
The yield from 10-year bonds is expected to be between 6.20% and 6.50%, whereas 1- to 5-year high-quality bonds will offer better risk-reward.
Both global events and domestic economic trends will be important to determine India’s debt market situation.
Gold and inflation
Gold outshone other asset classes in the past year, due to heightened geopolitical tensions and the U.S.’s protectionist trade agenda.
Due to the rise in gold prices, the core inflation rose to 4.3% (the highest since October 2023). However, the headline CPI inflation declined to 2.8%, marking its lowest level since early 2019 due to falling prices of vegetables and pulses.
Conclusion
Equity investors should focus on strategic asset allocation and take advantage of market volatility by considering SIP/STP routes. Whereas those preferring debt can consider investing in Medium Duration funds, depending on their risk appetite, ideally for 2-3 years to avoid any market volatility
Despite global financial uncertainties, India continues to be among the top performers. The country’s long-term growth outlook remains robust due to strong macro factors, corporate health, and structural reforms. Considering these factors, investors may witness short-term volatility and stay focused to benefit from the country’s long-term growth potential.
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