Equity Market Outlook
India is undergoing remarkable growth in structural, cultural, and digital areas. With consumption accounting for 60% of its GDP and a solid balance sheet, the country looks well-positioned for sustained long-term growth. India's recognition as the "service capital" of the world further underscores its pivotal role in the global economy.
Looking ahead to February, both global and Indian equity may be shaped by a range of factors, including the December quarter results and the policies of the newly elected U.S. President. The Indian market stands to benefit from the 2025 Union Budget, which emphasizes strengthening consumption and supporting the manufacturing sector. These initiatives aim to create a more balanced and diverse economic landscape across various industries.
Geopolitical dynamics and the anticipated policies of the Trump administration may play a key role in shaping market trends in the months to come. The government's focus on capital expenditure (capex) and driving consumption in the Budget is expected to positively impact select sectors of the Indian economy, supporting broader economic growth and employment opportunities.
The push to enhance consumption is a welcomed step, although the flat capex target for infrastructure and core sector investments has prompted some discussion. While private sector participation was expected to complement public spending, a more cautious approach has been observed. Additionally, while earnings for the third quarter of FY26 have been slower, the evolving landscape of global tariff policies offers an opportunity for continued strategic adjustments. Overall, these factors contribute to a dynamic environment, providing multiple avenues for growth and opportunity in the Indian market.
Debt Market Outlook
Bond markets responded positively to the Union Budget, primarily due to the government's commitment to fiscal consolidation. The budget set a fiscal deficit target of 4.4% of GDP for FY26, down from the revised 4.8% for the current year. The narrower deficit target is expected to bolster investor confidence.
Bond markets anticipate that the RBI may adopt an accommodative stance in its upcoming monetary policy meeting, which coupled with the government's fiscal discipline, is expected to support lower bond yields.
Long-term investors can consider longer duration funds like Dynamic Bond Fund and Banking & PSU Fund, while short-term investors can look at ultra short and use Liquid Fund to park their excess cash.
Source: RBI, Bloomberg, CCIL, MOSPI (as on 31st January 2025)