Insights

Indian equity markets in June 2026 rebounded by 1.4%, with the Nifty50 recouping majority of the losses it made in May 2026. With easing geopolitical tensions, dated Brent prices cooled down. Despite foreign outflows, broader markets held firm, with midcap index remaining flat and small-cap index advancing 4%. Sectoral indices ended mixed, with Banks, Realty and healthcare gaining 7%, 6%, and 5%, respectively, while IT, Metal and Energy Indices declined by 9%, 7%, and 3%. Flows remained divergent, as foreign investors pulled out nearly USD 5.1 billion from Indian equities in June 2026—marking the fourth consecutive month of net outflows—while DIIs added USD 8.5 billion. However, the pace of FII selling slowed in June compared to USD 7.4 billion in April and USD 12.7 billion in March 2026.

Other key developments in June 2026 include government announcement of reforms to attract long-term foreign capital, including the removal of withholding tax on interest and capital gains tax on FPI’s G-Sec investment. RBI Announced incentives to shore up INR, including subsidised FX hedging for FCNR(B) deposits and concessional swap facilities for PSUs which is expected to bring in foreign inflows and decrease the volatility of INR. The US and Iran signed an MoU to end the war, which led Brent crude prices to ease to US$71.5/bbl in June 226, down from US$93.4/bbl a month earlier.

High frequency indicators for June 2026 maintained momentum. Vehicle registrations, a proxy for retail demand, continued to show double digit growth in both two wheelers (23%) and passenger vehicles (31%), with PVs sustaining strong demand. However, late onset of rainfall due to El Niño remains a risk to rural two wheeler demand in FY27. The Services PMI eased to 57.4 from 59.8 in May, reflecting weaker new orders, while the Manufacturing PMI slipped to 54.2 from 55.0, indicating cooling growth despite easing input cost and price pressures.

With total new orders and international sales rising at softer rates, expansions in buying levels, employment, and output slowed. Power demand grew 11.6% YoY to 166.5 BU, marking a record six consecutive months of growth, as June 2026 was among the driest in over a decade with rainfall nearly 40% below average, pushing up cooling demand. GST collections (ex cess) remained steady at INR 1.95 tn, with growth accelerating to 14% YoY versus 9% YoY in May (excluding one offs). System credit growth strengthened further, rising from 9.0% YoY in May 2025 to 16.2% by mid May 2026 and 17.7% by mid June 2026, with growth remaining broad based. Overall, incoming high frequency data suggests growth across indicators: GST revenues are stable, credit growth is improving, and power demand has strengthened. Despite global uncertainty, India’s domestic demand remains resilient, would be supported by easing commodity prices which is expected to boost household purchasing power and contain inflation. Meanwhile, early signs of export recovery suggest external demand would increasingly complement investment and domestic consumption, keeping growth well supported.

As anticipated, the month saw easing of tensions on the West Asia conflict and more importantly the relaxation on traffic through the SoH. Further, in line with our general thesis, that the oil market is fundamentally weak from a demand-supply perspective, we saw a steep decline in crude oil back to pre-war levels post the truce. We reckon that hereon, Indian market will likely be driven more by domestic factors than global considerations. With the further consolidation of power post its electoral victory in West Bengal, the ruling Govt is likely to turn its focus towards the agenda of reforms and development.

With all this, the backdrop has turned considerably more constructive for the Indian markets. Geopolitical concerns have mellowed, energy prices have eased from their peaks, and global oil trade has largely normalized. The earnings outlook has strengthened meaningfully, with corporate earnings expected to clock ~15% CAGR over FY26–28, despite temporary pressure in 1QFY27. Moreover, as we write this, the trends for the Indian monsoons are incrementally looking up and along with the moderation in global commodity prices, should also ease concerns on any runaway inflation. Meanwhile, valuations have corrected across indices and sectors, with large caps and several heavyweight sectors now trading below their historical averages. Additionally, India's valuation premium compared to global peers has compressed to near historical lows. After nearly two years of consolidation and underperforming most global markets over the past year, Indian equities appear to have largely priced in the key downside risks and look poised for better days ahead. We once again reiterate that event driven disruptions in the Indian markets have generally ended up being investing opportunities in hindsight.

We believe investors could consider a range of options such as flexi-cap strategies (for medium risk investors) to staggered investments in small cap funds (for high-risk investors) and well-structured multi-asset funds (for low-risk investors).

The month of June saw a big reversal in market sentiment which had remained negative for a long time. Brent crude oil prices fell by more than 30% and now close to pre-middle east war level as the Strait of Hormuz got opened after the US and Iran signed a memorandum of understanding on peace deal. Back home, amidst a challenging backdrop, RBI kept the policy rates unchanged and unleashed a series of measures to boost capital inflow which stabilized INR. Buoyed by these developments, domestic market yields witnessed a sharp rally with the G-Sec yields coming lower by more than 25-40 bps. Money market and corporate bond yields came much lower in anticipation of lower supply and higher demand following the RBI’s FCNR (B) & ECB related measures.

Outlook

West-Asia conflict has seen some de-escalation with US – IRAN agreeing for a ceasefire and a 60-day negotiation window to resolve the issues. Even though there have been few minor skirmishes, market is largely hopeful of a favorable outcome and subsequently the war-related risk premium on crude oil prices has come substantially lower. Any failure of ceasefire and supply chain disruption can quickly set the crude oil prices higher and induce market volatility.

Globally, interest rate cycle has changed course with many central banks turning towards rate hikes to tame the inflationary pressures. ECB delivered its first-rate hike of 25 bps in this cycle and emphasized data dependent approach for future rate actions. US FED’s Chairman Kevin Warsh in his first policy, delivered a hawkish pause and reinstated FED’s commitment to achieve the price stability. Upward revisions to the ‘dot plot’ signaled that 9 out of 18 respondents see potential rate hikes in 2026. BoJ delivered yet another rate hike. Many Asian Central banks have already started an aggressive rate hike cycle to tame inflationary pressures and to also arrest excessive depreciation pressure on currency.

Amidst the challenging global backdrop, domestic fixed income market enjoys favorable tailwinds.

Indian companies have already started mobilizing the foreign funds under the RBI’s new FCNR (B) deposit scheme and ECB norms. Following the RBI’s clarification in terms of leverage facility on FCNR (B) deposit, we expect the activity to pick up and garner USD 50 – 100 bn till September 2026. This is a significant quantum and can lead to a sharp reduction in supply of both the CDs as well as the corporate bonds. At the same time, demand for 3 – 5 year corporate bonds is expected to increase as the foreign banks may look to deploy the FCNR(B) deposit proceeds in similar maturity high quality corporates. Additionally, the expanded universe of G-Sec under fully accessible route and no FPI’s taxation on G-Sec has enhanced the likelihood of G-Sec inclusion in the Bloomberg Global Bond Index. FPIs have already poured ~USD 5 bn in domestic G-Sec post these announcements and the pace is expected to pick up if G-Sec gets included in global bond index anytime soon.

RBI’s MPC has maintained a balanced wait & watch approach on policy rates. Post policy, several MPC members & MPC minuets have re iterated that pre-emptive rate action may not be required given cost-push nature of inflationary shock. International crude prices have dropped significantly since the meeting and if the prices sustain lower, it will provide a substantial relief on headline inflation especially as the monsoon is turning out to be deficit so far. Many economists have pushed back the rate hike expectations over last few weeks.

Overall, while the global volatility may remain high depending upon the West-Asia developments, domestic factors provide a favorable backdrop for the market yields to come further lower from the current levels. With lower supply of bank CDs and corporate bonds, we expect the short-end yields to come down faster and the spreads on AAA security over G-Sec to mean revert over a period of time. Funds like low duration, short duration and corporate bond funds are suitably placed to capture such opportunity. With expectations of G-Sec inclusion in Bloomberg global bond index, Gilt funds with longer duration exposure may be tactically considered.