GLOBAL INDICATORS

 

 

• Global growth stayed moderate at 2.8% in H1 2025, led by emerging markets. India surged ahead with 6.5% GDP growth and China grew 4.5%, driven by strong domestic demand and stimulus. Advanced economies lagged, with the US at 2.2% and Japan 1.1%, while Europe showed uneven recovery, with Germany and the UK expanding 0.8-1.4%.

 

 

• Most economies have succeeded in lowering inflation compared to the last two years, which is positive for global stability and growth. The US and Germany are near ideal levels; India stands out for its sharp decline in prices, while Japan and South Korea have reached healthy, stable rates. The UK must reduce inflation further, and China’s zero inflation may indicate economic softness and weak demand

 

 

CURRENCY MOVEMENT

 

From April to September 2025, the USD/INR exchange rate showed a clear upward trend, rising from around Rs. 85 to nearly Rs. 89. After a brief dip in May, the rupee steadily weakened against the dollar through Q2 and Q3. Volatility increased during the period, as indicated by rising variance—reflecting global rate differentials and domestic inflation pressures.

 

From April to September 2025, the British Pound (GBP) strengthened against the US Dollar (USD), rising above its mean of 1.30 and peaking around July. The uptrend reflected improved UK macro sentiment and softer US inflation. However, by September, the pound began to ease slightly, indicating renewed dollar strength and global rate uncertainty.

 

From April to September 2025, the Euro (EUR) appreciated steadily against the US Dollar (USD), rising from below 1.10 to a peak above 1.17 in July. This uptrend reflected easing US inflation and stronger Eurozone data. By September, the euro slightly retreated, but remained above its long-term mean, signalling resilient demand.

 

GLOBAL EQUITY MARKET PERFORMANCE

 

 

Between April and September 2025, global equity markets delivered strong returns, led by tech-heavy indices like the Nasdaq and Hang Seng. AI momentum, policy easing, and resilient earnings fueled rallies across the US, China, and India. While midcaps and domestic sectors outperformed in India, export-oriented names lagged under global headwinds.

 

INDIA ECONOMIC SNAPSHOT

 

• Strong Economic Growth:India’s real GDP surged by 7.8% in Q1 FY26, with full-year growth projected at 6.7–6.8%, driven by robust rural demand and a revival in urban consumption..
• Low Inflation: Inflation eased to an 8-year low of 1.6% in July, staying comfortably within the RBI’s 2–6% target range through August.
• Improving Employment: Unemployment dropped to around 5.1% in August, although urban joblessness remains higher than rural.
• Stable Economy: Overall, these indicators point to a resilient and stable economy, navigating global challenges effectively.

 

India PMI April-September 2025

 

• India’s PMI readings showed strong month-on-month growth in both manufacturing and services from April to August 2025, peaking in August as demand, production, and new orders surged.
• In September, PMI fell due to slower overseas demand and rising input costs (steel, batteries, electronics, cotton), causing firms to curb purchases and moderate hiring.
• Companies raised selling prices to protect margins, which dampened new orders.
• Despite the September decline, the PMI remained well above 50, indicating moderated growth from the August peak rather than an economic contraction.

 

EQUITY MARKET PERFORMANCE

 

Indian equities posted healthy gains in H1 FY26, with the Nifty 50 up ~8% to 24,300. Broader markets outperformed, as midcaps and small caps surged on strong domestic flows, even as sectoral divergence widened. Domestic-focused sectors thrived on policy support and consumption, while export-oriented names lagged under global headwinds.

 

The rally was powered by domestic investors, with FIIs selling ~Rs. 90,000 crore but DIIs are pumping in over Rs. 3.5 lakh crore. Retail participation hit a record, with demat accounts crossing 20 crores. Valuations stayed near long-term averages, leaving room for selective re-rating, though global trade tensions and currency swings remain watchpoints.

 

SECTOR PERFORMANCE

 

The half year began with Defence & Aerospace setting the pace, delivering nearly +48% returns as government allocations and Make in India orders created multi-year visibility. IT Hardware also surged (about +46%) on AI-driven demand for servers and devices. By mid-year, Automobiles turned into a standout story: after after a soft patch due to emission norm costs and inventory pressure, GST rate cuts and festive demand revived momentum, pushing the sector into 30%+ gains. Mining and Electronics too benefited from commodity recovery and resilient consumption.

 

 

On the other side, Sugar was the earliest laggard, sliding over 35% due to oversupply and export restrictions. Telecom Infrastructure and Ceramics followed with steep losses as project delays and weak construction demand weighed. Export-oriented sectors like IT services, pharma, and FMCG remained under pressure throughout, facing global demand softness and margin squeezes due to higher input costs. PSU banks and select financials managed modest but steady gains, supported by credit growth and improving asset quality.

 

CORPORATE EARNINGS

 

• Defence and aerospace led the way with 20%+ revenue and 25-30% profit growth on strong government orders.
• IT hardware and automobiles grew on AI demand, GST cuts, and festive sales.
• Large banks delivered double-digit revenue and 15-20% profit growth.
• Mid-cap financials and commodity firms saw growth in the low teens.
• Export-driven sectors like IT, pharma, and FMCG faced flat or low growth and margin pressure.
• Sugar, telecom infrastructure, and shipping recorded steep losses due to oversupply and project delays.
• Small caps were mixed: construction and defence chains grew, while consumer discretionary lagged amid weak rural demand.

 

Overall, strong domestic demand drove growth, led by defence, autos, and banks, offsetting global/export headwinds.

 

COMMODITIES PERFORMANCE

 

Precious metals stole the show in the first half of FY2025-26. Gold glittered with a 50% jump, climbing from ~Rs.76,500 to ~Rs. 1,14,900 per 10g, as investors rushed to safe havens amid global uncertainty.  Silver shone even brighter, up 52%, rising from ~Rs. 95,000 to ~Rs. 1,43,000 per kg, powered by both safe-haven demand and industrial use in solar and EVs.

Crude oil, meanwhile, stayed volatile in the $70-95/bbl range, keeping India’s import bill and inflation on edge.

 

 

An overview of the key domestic and global factors impacting Indian markets during H1 FY26

India entered FY26 after an extended equity market decline that began in September 2024. Early 2025 witnessed occasional recoveries, but these were repeatedly disrupted by external shocks from the US, keeping markets volatile. The subsequent analysis highlights the key domestic policy measures, global events, and market developments that shaped the first half of the fiscal year.

 

MONETARY POLICY: Amid global uncertainty and easing inflation, the RBI cut the repo rate by 100 bps to 5.50% and lowered the CRR to 3% in H1 FY26. These liquidity-boosting measures aimed to spur consumption, ease credit, and accelerate investments in infrastructure and manufacturing. The policy struck a balance between stimulating growth and keeping inflation in check.

 

GST REFORMS: The GST Council streamlined the tax regime into two key slabs—5% and 18%—to simplify compliance and spur demand. Daily essentials and food staples moved to 5%, while vehicles, appliances, and tractors shifted to 18%. Insurance premiums were fully exempt. Sin and luxury goods now attract a unified 40% rate. Alcohol remains outside GST. Faster registration and procedural tweaks further boosted business efficiency and economic momentum.

 

US TRADE TARIFFS AND H‑1B VISA IMPACT: In a series of aggressive moves, the US imposed 50% tariffs on key Indian exports—textiles, gems & jewellery, chemicals, and engineering goods—citing India’s Russian crude imports. Tensions deepened with a 100% tariff on branded pharma imports from October, though generics were spared.   Additionally, the H-1B visa fee was hiked to $100,000 per petition (up from ~$2,000), straining Indian IT firms. These external shocks derailed a fragile market recovery and triggered volatility across export-driven and tech sectors.

 

DE-DOLLARIZATION, FTAS & STRATEGIC INVESTMENTS

 

India accelerated de-dollarisation by expanding rupee-settled trade with Russia, Africa, and other partners, while fast-tracking FTAs with the UK, UAE, EU, and ASEAN to diversify market access. Crucially, India’s first FTA with EFTA (Switzerland, Norway, Iceland, Liechtenstein) takes effect on October 1, 2025: tariffs on roughly 80-85% of goods into India are eliminated, Indian exporters get duty-free access on 99% of products in EFTA markets, and the bloc has committed $100 billion of investment over 15 years to create 1 million jobs-focused on manufacturing, pharmaceuticals, and clean energy, with sensitive sectors like agriculture and dairy excluded. Defence spending and domestic procurement under “Make in India” continue to deepen local supply chains. Collectively, these moves strengthen long-term resilience, boost strategic sectors, and reduce reliance on traditional partners—reinforcing India’s position in global trade.

 

US MARKET & MACRO

 

US equities posted steady gains in the first half of FY2025–26, with the S&P 500 up about 8% and the Nasdaq rising nearly 10%. The rally was powered by AI, semiconductors, and energy stocks, while regional banks and select tech‑services names lagged under the weight of higher funding costs and margin pressures.

 

On the macro front, the picture turned mixed. Unemployment edged up to ~4.3%, signaling a cooling labor market, while inflation re‑accelerated to ~4.2–4.3%, partly due to tariff pass‑through. The Federal Reserve held rates high through mid-year but delivered its first 25 bps cut in September, marking a cautious shift toward easing.

 

OUTLOOK FOR INDIAN MARKETS - H2 FY2025-26

 

India’s GDP growth is projected at 6-7%, supported by resilient consumption, strong credit expansion, and sustained government infrastructure spending. Inflation has cooled below 4% in recent months and is expected to average 3-4% in H2, giving the RBI room to maintain a stable policy stance.

 

The rollout of GST 2.0 is expected to be a structural positive, boosting consumption and topline growth in autos, FMCG, and durables, though short-term transition costs may cause some volatility. IT and consumer discretionary sectors may remain under pressure from global demand softness and input‑cost swings. The rupee, currently near Rs. 88/USD, is expected to trade in the Rs.87-89/USD band, with RBI interventions containing sharp moves. Gold and silver should remain supported as safe-haven assets.

 

 

Best Regards
 

Shakshi 

Alpha Research

Disclaimer: The information on this document is provided for information purpose only and is available in the public domain. It does not constitute any offer, recommendation. The views expressed by the Alpha Capital Research are based on current market conditions and information available publicly.