June turned out to be an extremely interesting month for the stock markets, marked by another unexpected event—the Israel-Iran conflict—which, despite initial concerns, ended swiftly and was absorbed by global markets. Surprisingly, markets performed well, with most global indices ending the month on a strong note.
In the Indian context, the Nifty ended higher for the fourth consecutive month, gaining 2.5%, while small and mid-cap stocks continued to outperform despite concerns around promoter selling, the deluge of new IPOs, and elevated valuations. With this, the Nifty has now rallied 15% over the last four months, with even stronger gains in the broader market.
At the beginning of 2025, markets were weak, carrying over negative sentiment from late 2024. There was widespread pessimism, with some commentators predicting that the 2024 highs wouldn’t be seen again for several years. Concerns about small and midcap valuations were widespread. In a peculiar move, one large mutual fund even advised investors to stop their SIPs.
Since then, we’ve seen three major unexpected negative events:
- Tariff Wars – Tariff announcements were harsher than expected, and although some were put on hold, the ongoing uncertainty has created volatility.
- India-Pakistan Conflict
- Israel-Iran Conflict
Despite these geopolitical tensions, global and Indian markets have done remarkably well. The Morgan Stanley Emerging Markets Index even broke out to a multi-year high last week. The Nifty ended the first half of 2025 up 8%, broadly in line with my full-year expectation of 12–15% returns. The Nifty Midcap index also gained 5% by mid-year, despite a steep intra-period correction.
Among key domestic developments, the recent monetary policy committee meeting was notably growth-oriented, with both a deep repo rate and CRR cut. We’re now six months into the monetary easing cycle, and this is typically when growth starts responding. Monetary policy effects take time, but green shoots are emerging.
Inflation data released during the month came in below expectations. The monsoon has begun strongly, covering the entire country nine days ahead of schedule. July rainfall will be crucial for agricultural output. However, food security is well-buffered: government stocks of rice and wheat are high, and pulses supply is adequate. The government also rolled back half of last year’s increase in edible oil import duties, which should help keep inflation in check.
It was also an interesting April to June quarter where the USDINR ended almost flat after wide gyrations during the quarter driven by Tariff and Geopolitical Tensions newsflow. Many people also keep on asking for my view on Gold as we were one of the first entrants in a big way into this asset class. In my view Gold seems to have made a frenzied speculative top for the near term and should correct and consolidate over the next few months before it comes back into a buying zone.
Government spending at the start of the fiscal year has been robust, and GST collections remain strong. However, advance tax collections were muted on a net basis due to refunds and the impact of personal tax cuts announced in the budget. The Q4 current account registered a significant surplus, and GDP growth for the last quarter of FY2024 came in strong.
Globally, economic growth data has been mixed. The U.S. and China show signs of slowing, while the Eurozone remains stable.
The tariff war remains an overhang, with the July 9th deadline approaching. This could trigger short-term volatility. However, there’s optimism that the India-U.S. trade deal may materialize by then.
July also marks the beginning of Q1 earnings season. Results are expected to be muted in Q1 but should strengthen in Q2 and beyond. An early festive season, combined with lower inflation, reduced interest rates, easier liquidity, increased government spending, and a good monsoon, should all contribute to better performance from Q2 onwards. Overall, corporate earnings growth for FY2025 is expected to be around 10–12%, with a positive bias.
Over the past few months, markets have climbed a wall of worry. Most macro indicators remain supportive. While market valuations aren’t cheap, they are far from bubble territory. Risks do remain—particularly speculative excesses in popular sectors, continued equity supply from promoter/PE selling, and mispriced IPOs. The results season often brings volatility but also opens up opportunities.
On balance, we are well-positioned for positive returns over the next one year.