InvestNow Market Wrap-Up: May 2025
Introducing Mugunthan Siva, Co-Founder & CIO at India Avenue, this month’s guest author of the InvestNow Market Wrap-Up.
Indian Equity Markets in May & Outlook for 2025
The month of May 2025 was an eventful month for Indian equity markets, marked by increasing foreign investor interest and specific sectoral trends playing out in the face of geopolitical events and policy changes. Of note, was a steep fall on May 9th as the India-Pakistan conflict appeared to be escalating. However, over the following weekend, resolution was reached on a ceasefire, which improved investor sentiment and saw a swift rebound in equity markets.
The NZD rose around 1% over the month against the INR, neutralising some of the gain (on an unhedged basis). In the year to date (YTD), the NZD has appreciated quite significantly against the INR. However, over 1 year the currency pair has remained relatively stable.
| As of 31 May 2025 | 1 month | YTD | 1 year |
| MSCI India (NZD) | 0.77% | -3.52% | 7.71% |
| MSCI India (INR) | 2.43% | 2.81% | 7.30% |
Source: MSCI, Refinitiv
In INR (Rupee) terms:
- Broadly the Indian equity markets advanced over the month with the Nifty 50 gaining 1.71%. The Mid, Small and Microcap Indices surged 6, 9% and 12% respectively
- Defence stocks rallied 22%, driven by government-led indigenisation efforts and strong order visibility. Railway stocks also rose 11.1%, benefiting from infrastructure expansion and policy support. EV & Internet sectors saw gains of 7.1% and 6.1%, respectively, as investors rotated into growth-oriented themes.
- Capital Goods, Media, Real Estate and Public Sector Banks performed well in May, benefitting from rising government spending and lower interest rates.
- Calendar Year to Date, the best performing sectors have been Financials, Metals and Infrastructure, whilst Pharmaceuticals, Real Estate and Technology have underperformed so far this year.
Source: Motilal Oswal, Bulls and Bears Report, May 2005.
The improvement in market sentiment saw Foreign Portfolio Investors (FPIs) continue to add exposure to India for the third month in a row (US$2.3 billion) into Indian equities, reversing outflows from October 2024-February 2025. Key drivers of FII inflows were a weakening USD, which focused investors on Emerging Market allocations, as well as receding inflation and signs of improving earnings in India. Sectors attracting FII interest include Autos and Components, Telecom, and Financials. Domestic Portfolio Investors (DPI’s) added US$7.9 billion over May, their third largest monthly inflow over the last five years, which tends to favour small and mid-cap stocks.
Local investors in India have become a significant investor in their own capital markets over the last five years. In 2024, they invested an average of US$5 billion per month into their own market, typically via systematic investment plans (monthly investing from salaried accounts).
Macroeconomic & policy influences were broadly positive for the month, with the India signing a free-trade agreement with the UK and there are further expectations of an India-US trade deal. Additionally, there have been two rate cuts of 0.25% each in February and April and on Friday June 6th a further surprise rate cut by the Reserve Bank of India of 0.50% to support economic growth and add liquidity to the system.
Justifying India’s valuations
Valuations remain a concern for foreign investors who have a broad mandate to invest across the globe. Indian markets (Nifty 50) are trading close to 21x one year forward earnings. Whilst Indian equity markets are trading close to their 10-year average, relative to other regions in Emerging Markets and Europe, India appears to be expensive relative to other equity markets around the world, except for the US.
Source: Motilal Oswal, Bulls and Bears Report, May 2005.
India’s valuation premium may appear elevated compared to other regions, several key factors—favourable demographics, robust earnings growth, high returns on equity (ROEs), and strong macroeconomic fundamentals—justify its position. Lower oil prices, tax cuts, contained inflation, and declining interest rates further strengthen the economic outlook, providing solid support for equity markets.
Why did Indian markets pull back from October 2024 to February 2025?
Earnings growth in FY25 was close to zero for the Nifty 50 (India’s Top 50 companies by size) and this led markets to experience downside from October 2024 – February 2025. Additionally, China announced stimulus is September last year and several global investors took the opportunity to take some profits from their Indian equity market exposure and switched to China, based on this stimulus and cheaper valuations. However, the March Quarter 2025 earnings showed signs of improvement and were above expectations. After a brief pause for 6-9 months, it appears India’s demographics is once again driving robust earnings growth in the region.
Outlook for the rest of 2025
In a world where global trade stands at a staggering US$33 trillion, India remains a relatively small player, with FY25 exports reaching US$825 billion. This gap underscores the immense potential for India to expand its footprint in global supply chains. Despite its rapid rise—having overtaken Japan to become the world’s fourth-largest economy—India’s participation in international trade remains modest. However, with free trade negotiations gaining momentum, India is likely to play a more significant role in global commerce, capitalizing on its manufacturing and services strengths.
Several short-term tailwinds support India’s equity market:
- Monetary Policy: 1% of interest rate cuts is expected to improve liquidity and spur growth, benefiting sectors like banking and NBFCs.
- Fiscal Policy: The increase in the tax threshold will provide relief to the middle class, boosting consumer spending and retail sectors.
- Weather Conditions: A normal southwest monsoon (June-September) is anticipated, supporting agriculture and rural consumption.
- Commodity Prices: Weaker oil prices lower input costs for industries, improving corporate earnings.
In the short-term, 1% of interest rate cuts, a forecasted normal south-west monsoon (June-September), an increase in the tax threshold (beneficial for tax-paying middle class) as well as weaker oil prices, will be positive for financial and consumption stocks. India’s upcoming festival season should be positive given these tailwinds.
Source: Investing.com
India’s 10-year bond yields are now approaching territory where private investment / capex typically increases as the cost of capital reduces. Over history a drop in yields has led to a good environment for Indian equities (2004-2006, 2009, 2017 and 2021) after yields fell.
The caveat to all of this are global macroeconomic events. Given a very policy driven government in the US, which is leading to reshuffling of trade routes and impacting potential geopolitical risks – it makes sense to focus on long-term fundamentals, rather than get caught in momentum crosshairs. Typically, demographics and long-term megatrends tend to supersede policy initiatives or sentiment.
If you want to see which India Avenue investments are available on InvestNow, please visit their page on our website.
InvestNow Market Wrap-Up: May 2025
Introducing Mugunthan Siva, Co-Founder & CIO at India Avenue, this month’s guest author of the InvestNow Market Wrap-Up.
Indian Equity Markets in May & Outlook for 2025
The month of May 2025 was an eventful month for Indian equity markets, marked by increasing foreign investor interest and specific sectoral trends playing out in the face of geopolitical events and policy changes. Of note, was a steep fall on May 9th as the India-Pakistan conflict appeared to be escalating. However, over the following weekend, resolution was reached on a ceasefire, which improved investor sentiment and saw a swift rebound in equity markets.
The NZD rose around 1% over the month against the INR, neutralising some of the gain (on an unhedged basis). In the year to date (YTD), the NZD has appreciated quite significantly against the INR. However, over 1 year the currency pair has remained relatively stable.
| As of 31 May 2025 | 1 month | YTD | 1 year |
| MSCI India (NZD) | 0.77% | -3.52% | 7.71% |
| MSCI India (INR) | 2.43% | 2.81% | 7.30% |
Source: MSCI, Refinitiv
In INR (Rupee) terms:
- Broadly the Indian equity markets advanced over the month with the Nifty 50 gaining 1.71%. The Mid, Small and Microcap Indices surged 6, 9% and 12% respectively
- Defence stocks rallied 22%, driven by government-led indigenisation efforts and strong order visibility. Railway stocks also rose 11.1%, benefiting from infrastructure expansion and policy support. EV & Internet sectors saw gains of 7.1% and 6.1%, respectively, as investors rotated into growth-oriented themes.
- Capital Goods, Media, Real Estate and Public Sector Banks performed well in May, benefitting from rising government spending and lower interest rates.
- Calendar Year to Date, the best performing sectors have been Financials, Metals and Infrastructure, whilst Pharmaceuticals, Real Estate and Technology have underperformed so far this year.
Source: Motilal Oswal, Bulls and Bears Report, May 2005.
The improvement in market sentiment saw Foreign Portfolio Investors (FPIs) continue to add exposure to India for the third month in a row (US$2.3 billion) into Indian equities, reversing outflows from October 2024-February 2025. Key drivers of FII inflows were a weakening USD, which focused investors on Emerging Market allocations, as well as receding inflation and signs of improving earnings in India. Sectors attracting FII interest include Autos and Components, Telecom, and Financials. Domestic Portfolio Investors (DPI’s) added US$7.9 billion over May, their third largest monthly inflow over the last five years, which tends to favour small and mid-cap stocks.
Local investors in India have become a significant investor in their own capital markets over the last five years. In 2024, they invested an average of US$5 billion per month into their own market, typically via systematic investment plans (monthly investing from salaried accounts).
Macroeconomic & policy influences were broadly positive for the month, with the India signing a free-trade agreement with the UK and there are further expectations of an India-US trade deal. Additionally, there have been two rate cuts of 0.25% each in February and April and on Friday June 6th a further surprise rate cut by the Reserve Bank of India of 0.50% to support economic growth and add liquidity to the system.
Justifying India’s valuations
Valuations remain a concern for foreign investors who have a broad mandate to invest across the globe. Indian markets (Nifty 50) are trading close to 21x one year forward earnings. Whilst Indian equity markets are trading close to their 10-year average, relative to other regions in Emerging Markets and Europe, India appears to be expensive relative to other equity markets around the world, except for the US.
Source: Motilal Oswal, Bulls and Bears Report, May 2005.
India’s valuation premium may appear elevated compared to other regions, several key factors—favourable demographics, robust earnings growth, high returns on equity (ROEs), and strong macroeconomic fundamentals—justify its position. Lower oil prices, tax cuts, contained inflation, and declining interest rates further strengthen the economic outlook, providing solid support for equity markets.
Why did Indian markets pull back from October 2024 to February 2025?
Earnings growth in FY25 was close to zero for the Nifty 50 (India’s Top 50 companies by size) and this led markets to experience downside from October 2024 – February 2025. Additionally, China announced stimulus is September last year and several global investors took the opportunity to take some profits from their Indian equity market exposure and switched to China, based on this stimulus and cheaper valuations. However, the March Quarter 2025 earnings showed signs of improvement and were above expectations. After a brief pause for 6-9 months, it appears India’s demographics is once again driving robust earnings growth in the region.
Outlook for the rest of 2025
In a world where global trade stands at a staggering US$33 trillion, India remains a relatively small player, with FY25 exports reaching US$825 billion. This gap underscores the immense potential for India to expand its footprint in global supply chains. Despite its rapid rise—having overtaken Japan to become the world’s fourth-largest economy—India’s participation in international trade remains modest. However, with free trade negotiations gaining momentum, India is likely to play a more significant role in global commerce, capitalizing on its manufacturing and services strengths.
Several short-term tailwinds support India’s equity market:
- Monetary Policy: 1% of interest rate cuts is expected to improve liquidity and spur growth, benefiting sectors like banking and NBFCs.
- Fiscal Policy: The increase in the tax threshold will provide relief to the middle class, boosting consumer spending and retail sectors.
- Weather Conditions: A normal southwest monsoon (June-September) is anticipated, supporting agriculture and rural consumption.
- Commodity Prices: Weaker oil prices lower input costs for industries, improving corporate earnings.
In the short-term, 1% of interest rate cuts, a forecasted normal south-west monsoon (June-September), an increase in the tax threshold (beneficial for tax-paying middle class) as well as weaker oil prices, will be positive for financial and consumption stocks. India’s upcoming festival season should be positive given these tailwinds.
Source: Investing.com
India’s 10-year bond yields are now approaching territory where private investment / capex typically increases as the cost of capital reduces. Over history a drop in yields has led to a good environment for Indian equities (2004-2006, 2009, 2017 and 2021) after yields fell.
The caveat to all of this are global macroeconomic events. Given a very policy driven government in the US, which is leading to reshuffling of trade routes and impacting potential geopolitical risks – it makes sense to focus on long-term fundamentals, rather than get caught in momentum crosshairs. Typically, demographics and long-term megatrends tend to supersede policy initiatives or sentiment.
If you want to see which India Avenue investments are available on InvestNow, please visit their page on our website.
Disclaimer:
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