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

Regardless of geopolitical tensions and a latest downgrade of the U.S. credit standing by Moody’s, international fairness markets proceed to defy expectations. Most indices, excluding Europe, have posted beneficial properties of 1–2% over the previous month, with many buying and selling close to document highs. Danger-on property have led the cost—US tech giants dubbed the “Magnificent Seven,” together with Indian mid-cap and small-cap shares, have surged by 15%, 17%, and 23% respectively.

Source: Bloomberg knowledge as on seventeenth June’25

This rally comes within the face of two important headwinds: unrest in Iran and Israel, and considerations over US fiscal stability. But, international rates of interest as much as 10 years have remained largely secure, with India standing out because of a notable decline in each short- and long-term yields.

The resilience of markets means that buyers are wanting past short-term dangers and specializing in structural development tales.

International tailwinds and India’s outperformance

A serious catalyst for international sentiment has been US President Donald Trump’s determination to pause reciprocal tariffs and resume commerce talks with the UK and China. This transfer has eased commerce tensions and boosted investor confidence throughout markets.India has emerged as a standout performer on this surroundings. Over the previous three months, Indian equities have outpaced international friends, supported by a sequence of presidency reforms, central financial institution interventions, and a strengthening rupee. These components have created a beneficial macroeconomic backdrop that buyers are more and more recognizing.

Home drivers: Liquidity, capex, and coverage help

India’s market resilience is underpinned by a number of key developments:

1. Capex revival

After a subdued interval from April to November 2024, the Indian authorities considerably ramped up capital expenditure. March 2025 noticed a document ₹2.4 trillion in capex—the very best ever in a single month and 25% greater than the full spent in FY2014. This surge displays a renewed dedication to infrastructure improvement and long-term development.

2. Banking liquidity and fee cuts

The Reserve Financial institution of India (RBI) has injected ₹6–7 trillion into the monetary system by means of USD/INR swaps, CRR cuts, OMOs, and long-term repo auctions. This has reworked a ₹3 trillion liquidity deficit right into a ₹6 trillion surplus. A 50-basis level fee reduce has narrowed the India–U.S. 10-year bond yield unfold from over 500 bps 5 years in the past to underneath 190 bps as we speak. These measures are anticipated to help credit score development and stimulate funding.

3. Return of overseas institutional buyers (FIIs)

After $28.7 billion in internet outflows between October 2024 and March 2025, FIIs have returned with $2.4 billion in inflows throughout April and Could. With FII possession at a decade-low of ~16%, there may be important room for additional upside. A secure rupee and bettering macro indicators are drawing international buyers again to Indian markets.

4. Earnings momentum

Company earnings for Q4FY2025 have exceeded expectations, with 7–8% year-on-year development in each income and revenue. Earnings downgrades for FY2026 have been restricted, and analysts anticipate a constructive inflection within the coming quarters.

One can argue the regular Indian’ financial development fee, its robust steadiness sheet, falling inflation and secure earnings development surroundings have all made a case for discount of Indian’s fairness threat premium and will help inflows.

Challenges to watch

1. Slowing consumption

Retail consumption development has dropped from 28–29% in mid-2024 to beneath 9%. This slowdown raises considerations about demand sustainability and credit score high quality. To counter this, the federal government introduced 3–5% tax cuts for middle-income earners (₹15–25 lakh), anticipated to spice up disposable earnings and revive shopper spending by Q3FY2026.

2. Valuation considerations

Markets are close to peak valuations. The massive-cap index is buying and selling at a five-year ahead P/E of 20x, whereas mid-caps and small-caps are at premiums of 30% and 15% respectively. These elevated valuations recommend that buyers ought to undertake a extra selective and tactical strategy to fairness allocation.

Tactical alternatives forward

India’s macroeconomic surroundings is bettering, supported by foreign exchange stability, ample liquidity, and a revival in capital expenditure. Nevertheless, elevated valuations and international geopolitical dangers stay key variables that might affect market course.

On this context, buyers might contemplate specializing in sectors and themes that supply structural development and are well-positioned to learn from present traits:

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

Financials: Significantly housing finance and capital markets, which stand to realize from elevated liquidity and credit score development.

Capex-linked sectors: Capital items and infrastructure are prone to profit from authorities spending.

Make in India themes: Prescribed drugs and specialty chemical compounds proceed to supply long-term development potential pushed by home demand and export alternatives.

(The writer Vinay Jaising, is CIO and Head – Fairness Advisory, ASK Personal Wealth)

Analyst Disclaimer: The data and opinion expressed herein above don’t represent funding recommendation to purchase, promote, maintain any securities, kindly seek the advice of acceptable SEBI registered middleman earlier than making funding associated selections. The opinions expressed above are private views of the writer. The views of the writer can also differ from the views expressed by some other writer of ASK Asset and Wealth Administration.