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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

June 2025

Macro Economic Review
 
 

External uncertainties remained high, first led by evolving US’s tariff policies, and then due to geopolitical flare-ups. Israel Iran war escalated in June, as US struck the Iran’s nuclear facilities. However, the geopolitical uncertainties ebbed as fast as they had flared up with the ceasefire. This was reflected in Brent crude prices, which had surged up to ~USD79/bbl, before cooling off to under USD 70/bbl as the ceasefire was announced. Amidst the global turmoil, Indian economy remains relatively more resilient, supported by a domestic focused economy, improving government spending, low inflation and higher banking system liquidity.

US retail sales weakened sharply to 3.3% in May, down from 5% in April and lower than the last 6-month average of 4.4%. The weak retail sales was also a lagged reflection of soft data like consumer confidence which had declined to 52.2 in April & May, against an average of 64.2 in the quarter January – March 2025. However, US consumer sentiment revived to 60.7 in June, potentially indicating tariff related uncertainties could have a lower impact than initially feared. July will be a critical month as the deadline ends for reaching a consensus on tariff policies. Labour market continued to be strong, with unemployment declining to 4.1% (vs 4.2% in the previous month). Non farm payrolls came in at 147k, against expectations of 106k. Manufacturing Purchasing Managers' Index (PMI) improved from the previous month to 52.9, remaining in expansionary zone for 6 consecutive months. Services PMI was recorded at 52.9 and has remained in expansionary zone for more than a year now. US inflation came in line with expectations at 2.4% and core inflation at 2.8% (marginally lower than expectations of 2.9%), though it still remains elevated. Tariff related uncertainty may impact the US’s inflation trajectory.

India’s CPI for May softened to a 75 month low at 2.8%, thereby remaining below the 4% mark for the 4th consecutive month. The decline in inflation was largely led by food inflation moderating to 1.50% YoY vs 2.14% in previous month. Sequentially also, food inflation remained subdued at 0.05% MoM, led by price correction in cereals, fruits and pulses. Reduction in import duty on edible oil will lead to further reduction in food prices. Core inflation, on the other hand, remained steady at 4.28% (vs 4.23% in the previous month), due to increasing gold prices. Monsoon has progressed well covering the entire country almost 10 days ahead of schedule, and rainfall being above normal levels, which should keep food inflation under check. With the expectations of healthy Kharif crop, normal monsoons and comfortable reservoir levels, CPI is expected to remain below RBI’s comfort level of 4%. Core inflation may still remain marginally above 4% with the higher gold prices and base effect. Global uncertainty around tariffs and resultant impact on growth could lead to faster moderation in inflation.

Manufacturing PMI for June rose to a 14-month high of 58.4, from 57.6 seen in the previous month. This has been in continuous expansionary zone for more than a year now. Services PMI increased to a 10-month high of 60.4 in June from 58.8 in May, mainly driven by an increase in the new business index. The index of eight core industries increased by 0.7% YoY in May, which was lower than the 1% YoY growth witnessed in the previous month. Four of the eight core industries reported a rise in production, whereas crude oil, natural gas, fertilizers and electricity registered a decline in output. Cumulative output of eight core industries increased by 0.8% for period April – May 2025, as compared to 6.9% growth recorded in the corresponding period last year.

India’s merchandise trade deficit narrowed to a three-month low at USD 21.9bn in May vs a deficit of USD 26.4bn in April 2025, largely led by contraction in imports, while exports were marginally higher. Net oil imports reduced to USD 9.1bn in May, these were surprisingly high in March and April at about USD 13-14 bn despite the lower crude prices. The trade deficit was partly offset by net services exports of USD 15.2bn, marginally lower than USD 15.9bn recorded in April. On a YoY basis, exports de-grew by 2.2%, largely due to oil exports declining by 30.4% while the non-oil exports remained steady with a 5.1% growth. Imports also declined by 1.7%, driven by lower oil imports (26.2% decline), gold imports (12.6% decline), while the non-oil non-gold imports remained steady with a 11.7% growth. For Q4FY25, current account was in positive territory due to seasonal factors, and recorded a surplus of USD 13.5bn. Capital account recorded a deficit of USD 5.6bn largely due to portfolio outflows and weak net FDI inflows. FY25 recorded a CAD of USD 23bn (0.6% of GDP) vs USD 26bn in FY24 (0.7% of GDP) – recording two consecutive years of comfortable CAD. Capital account was relatively muted with a surplus of USD 16.7bn in FY25 vs USD 89.4bn in FY24. Overall, FY25 BoP recorded a deficit of USD 5bn, vs a strong surplus of USD 63.7 in FY24. FX reserves at the week ending June 20 inched up to USD 697 bn, up from USD 691 bn from the end of previous month.

Central Government’s gross fiscal deficit (GFD) till May 2025 was only 0.84% of its annual budgeted target vs 3.14% during the same time previous year. The low fiscal deficit vs budgeted target has been largely due to RBI dividends which have exceeded budgeted targets, both in the current as well as the previous year. Government receipts till May 2025 grew by 28%, driven by RBI’s dividend and strong GST collections, partly offset by weak direct tax growth at 4.9% YoY. Expenditure increased by 19.7% YoY during April – May 2025, driven by large increase of 54% in government capex. The government collected INR 1.85 trillion GST in June 2025 vs INR 2 trillion in the previous month.

Overall domestic demand and activity levels show moderation. Consumption remains weak, led by slowdown in urban consumption even though rural demand is improving. Slowdown in bank lending is further impacting consumption. Investment cycle remains firm supported by government capex. With decline in food prices, overall inflation remains well within RBI’s comfort zone and will help consumption. Global volatility is expected to remain high and growth is expected to soften amidst US’s tariff policies.

  
Equity Market
 

  

After a volatile start, Nifty gained 3.1% in June, marking the fourth consecutive monthly rise. Both mid-cap and small-cap indices outperformed large-cap indices and were up 4% and 6.7%, respectively. Almost all sectors ended up in positive territory, except FMCG. IT, healthcare and Realty were up 4.7%, 3.9% and 3.8%, respectively. Global markets were mixed with South Korea (+13.9%), Japan (+6.6%) and US SPX (+4.6%) amongst the top gainers, whereas Thailand (-5.2%), Indonesia (-3.5%) and France (-1.1%) were the top losers. The market’s sentiment was boosted by the Reserve Bank of India's surprise 50 basis points rate cut, easing inflation, falling crude and ceasefire between Iran and Israel. June saw sharp volatility in crude, jumping by 22% to $79/bbl in the month before cooling off $67/bbl as some ceasefire between Israel-Iran was reached.

Other key developments: (1) the US decided to hike tariffs on steel and aluminium imports from 25% to 50%, (2) the RBI reduced the repo rate by a larger-than-expected 50 bps, CRR by 100 bps, in four tranches of 25 bps each between September and November and shifted the stance to neutral. (3) the US Fed FOMC kept the policy rate unchanged at 4.25-4.5%, (4) the RBI relaxed project finance norms, primarily by reducing provisioning requirements for banks and NBFCs lending to infrastructure and real estate projects. (5) Defense Acquisition Council approved defense purchases worth Rs1050bn. Meanwhile, FPIs bought US$1.7 bn of Indian equities in the secondary market, whereas DIIs bought US$8.5 bn.  

High-frequency data for June remains mixed, echoing the trend of previous months. GST collections growth rate moderated sharply to 6.2%YoY in June from 16.4% in May. Manufacturing PMI improved to a 14-month high of 58.4, while services PMI rose to a 10-month high of 60.4, on the back of rising new business & output. Central govt capital spending softened to INR 616bn in May, and its growth rate stood at 38.7%YoY (partly impacted by base effect). The cumulative rainfall for the country as a whole is +12% above the LPA as of 3 July, while sowing activity is up 11.3%YoY as of 27 June. Credit growth though subdued, picked up to 9.6%YoY in June (vs 9% in May). Vehicle registrations (Retails) moderate both for two-wheelers and passenger vehicles in YoY terms. Air passenger traffic continues to be resilient. 

As anticipated, global equity markets have fared well since mid-April, as the rhetoric on tariffs and its economic impact had abated even as geopolitics around South Asia and Middle East took centre stage. Quick global interventions averted extended conflicts in both cases which stabilised commodity prices and restored market confidence. In the interim, while India markets too did well, it underperformed global and emerging markets due to higher direct and indirect impact of oil prices.

We expect the near-term market direction to be guided by the outcome of the tariff negotiations as they approach the July 9 deadline and the progress of the 1QFY26 earnings season. While on the former, our expectations are still of a relatively moderate impact on India’s current account and overall economic growth, the latter will likely be more decisive. On this count, 1QFY26 may be early double-digit growth quarter for the broader universe and mid-single digit for the narrower universe of the Nifty. More importantly, this may well mark the end of low single-digit growth as we enter a period of favourable base effect which could lift earnings growth to a healthier double digit in the subsequent quarters of FY26. We think the market will likely be more focused on this outcome and the longer-term positivity around the India economic cycle over the short-term debate around tariffs and geopolitics. Domestic outlook on interest rates, liquidity, govt spending, fiscal deficit, inflation and a good monsoon all remain supportive of a possible acceleration in earnings momentum for corporate India in the coming quarters. With the overall economic cycle in an expansionary space, we remain excited about the medium-term opportunity for sustainable alpha generation in the small and midcap space especially post recent corrections. Our portfolio positioning remains procyclical and preference continues for high quality companies with strong business execution.


 
 
Fixed Income Market
 
 

US Treasury yields remained volatile during the month amidst FOMC’s policy announcement, US’s “Big Beautiful Tax Bill” and middle east geo-political tensions. FOMC delivered a hawkish policy while maintaining status quo on policy rate and retained its data dependent approach. The policy decision was taken in the backdrop of elevated US’s fiscal concerns as president Trump signed the tax bill. . In the domestic market, RBI delivered an outsized rate cut of 50 bps in June policy, however the domestic yields, both G-Sec as well as Corporate bonds, went up by 15 to 25 bps post policy as market reacted negatively to RBI’s change of stance to neutral and fears of tightening of banking liquidity. Only the money market yields rallied during the month.

Outlook

US yields may remain turbulent as the market’s rate cut expectation in US swing rapidly with incoming data print reflecting healthy jobs market & steady inflation, while the impending tariff related uncertainty remains an overhang on growth & inflation trajectory. Fiscal concerns remain elevated amidst the passage of the new tax bill. Notwithstanding the global uncertainty, currency markets have remained relatively stable giving flexibility to Central banks to remain focused on domestic factors for monetary policy actions.


Against the global uncertainty, Indian fixed income market continues to stay resilient on the back of favorable fiscal as well as monetary policies. On monetary policy front, MPC in its June policy delivered an outsized 50 bps repo rate cut and also a Cash Reserve Ratio (CRR) cut of 1% in a phased manner. However, in a balancing move, MPC also changed the policy stance back to “Neutral” from “Accommodative” after changing it in the previous April policy only, which spooked the market and resulted in hardening of yields (above 2 yr segment) by 15-25 bps. We believe it is an overreaction by market and gives an opportunity to investors. While MPC’s neutral stance may result in a pause over next couple of monetary policies, the current policy rate cut along with the liquidity surplus with CRR cut will still gradually drive the yields lower with a curve steepening bias. We expect RBI to maintain surplus banking liquidity for effective rate cut transmission and a measured Variable Rate Reverse Repo (VRRR) of Rs 1 lac cr for 7 days reflects that. Further, as inflation is expected to remain benign with healthy monsoon & may even undershoot RBI’s projection of 3.7% in FY26, any growth slowdown due to global overhang may open up a window for RBI to deliver one more policy rate cut.


Depending on the risk appetite, investors can look to participate across the debt fund categories. While the steep policy rate cut is favorable for the steepening of yield curve, longer end of the curve provides tactical opportunities as the term spread has widened sharply and is expected to compress in second half of FY26 when demand picks up from long investors. Overall, risk-reward remains favorable at current juncture with well-balanced demand-supply dynamics for G-Sec and benign liquidity. However, considering the shape of yield curve, it will be critical to position appropriately on G-Sec & Corporate bonds as we find G-Sec yield curve above 5 yr tenor and Corporate bond yield curve upto 5 yr tenor more attractive.


 






 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Important Information: The views contained in this section are for information purposes only and should not be construed as an investment advice to any party. The views contained herein may involve known and unknown risks and uncertainties that can differ materially from those expressed/implied. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. Invesco Asset Management (India) Private Limited does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
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