Equity Monthly for July 2026

Indian equities recovered in the month of June, as the West Asia crisis showed signs of de-escalation. A US–Iran peace framework and ceasefire mid-month, together with the reopening of the Strait of Hormuz have softened crude prices and supported the exchange rate. Central bank’s step to attract foreign currency deposits by absorbing the hedging cost has also supported the currency.

Table 1: Performance of Major Indices during the Month

Source: Bloomberg, Data as of 30^th June 2026.
Past performance may or may not be sustained in the future.

What Drove the Month

• Geopolitics turned: Easing West Asia tensions and softer crude were the dominant tailwind. India imports close to 80% of its crude requirements, so a durable de-escalation directly supports growth and moderates inflation.

• The past 2 years have been good for the rural economy; primarily driven by good monsoons. Meteorological department is anticipating a year of poor monsoons driven by El Nino. This will have an impact on inflation, rural incomes and consumption. We are currently at the end of Monetary Easing Cycle with large rate cuts in the past year. If inflation moves higher, interest rates may move higher, which will be a headwind for growth.

• Domestic flows held the line: DII inflows continued to outpace FPI outflows. FPIs remained net sellers (May net outflow of ₹49,340 cr), but the pace eased on the peace trade and on the RBI’s measure to attract foreign flows. Record SIP flows continued to cushion the market.

• Policy & markets: RBI held the repo rate and retained the neutral stance. Inflation below the target and potential moderation in growth prompted the central bank to retain the rates.

Near-Term Drivers We Are Watching

• Durability of the West Asia de-escalation: Crude remains the single biggest swing factor for India’s growth and inflation. A durable solution to the crisis is critical for the growth trajectory.

• Earnings and input costs: Forward FY27E EPS growth is likely to see moderation due to limited pass-through of crisis-driven input cost escalation, largely in cement, autos, capital goods and chemicals. Market is likely to overlook the near-term earnings impact as a durable solution to west Asia crisis would moderate input prices over medium term.

• Monsoon: After two good rural years, the progress and spread of this year’s monsoon will be keenly watched. A weak monsoon would have a bearing on rural income and inflation.

• FPI trajectory: Foreign interest hinges on India’s relative EPS growth, currency stability and US yields; As AI related foreign stocks see a growth moderation, India’s earnings growth would appear reasonable in a global context.

Table 2: Current Vs Historic Valuations of major indices

Source: Bloomberg; P/E: Price to Earnings; P/B: Price to Book; Data as of 30^th June 2026
Past performance may or may not be sustained in the future.

What Can an Investor Do?

Although the near-term earnings trend is tied to global developments, valuations have become conducive in several pockets - large-caps in particular trade below their long-term averages. Near-term volatility is likely to persist as the geopolitical situation evolves, but the impact of short-term disruptions on the intrinsic value of businesses is limited. Investors may consider a staggered allocation to equities to take advantage of favorable valuations and benefit from the potential volatility.

Above article is authored by Quantum.

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