Invest Guide October 2025

Dear Investors,

India showed resilience in Q2 FY26 with robust growth and low inflation, despite global uncertainties from trade frictions and U.S. tariffs. Strong domestic fundamentals provided stability, while external challenges added complexity. The note highlights key economic developments and frames an equity strategy to navigate opportunities and risks ahead.

Economic Growth and Inflation Trends -

The RBI raised India's FY26 GDP forecast to 6.8%, driven by GST reforms, resilient consumption, and manufacturing revival. Q1 grew 7.8%, with subsequent quarters projected at 7.0%, 6.4%, and 6.2%. Inflation outlook was cut to 2.6%, aided by GST rationalisation, benign food prices, and strong monsoon, providing policy space to sustain growth.

RBI's Monetary Easing -

The RBI, in its October 1, 2025, meeting, kept the repo rate unchanged at 5.50% with a neutral stance, pausing after earlier 100 bps cuts. It raised the FY26 GDP forecast, lowered inflation estimates, and stressed monitoring global trade tensions. The move signalled stable, growth-supportive policy.

FII & DII Activity -

FIIs remained net sellers in Q2 FY26, pulling out Rs. 1.3 lakh crore amid global risk aversion and dollar strength. In contrast, DIIs provided strong support with net inflows of over Rs. 2.2 lakh crore across July-September, aided by record SIP flows, ensuring domestic liquidity cushioned equity markets against external pressures.

GST Developments & Rationalisation -

At its 56th meeting, the GST Council approved major rate rationalisation, phasing out 12% and 28% slabs, consolidating into 5% and 18%, and introducing 40% for demerit goods. Effective September 22, 2025, reforms corrected inverted duty structures, eased compliance, improved efficiency, aided MSMEs, and carried mild disinflationary effects.

Q2FY26 Earning Preview & Market Implication -

Q2 FY26 earnings will be mixed: financials to show strong profit growth despite NIM pressure; capital goods, construction, and autos to stay resilient on capex and consumption; IT to post stable yet muted results; export-driven sectors like textiles, gems, and chemicals may lag due to tariff headwinds.

U.S. Tariff Impact -

The U.S. sharply increased tariffs on Indian exports to 50% in August 2025, targeting sectors like textiles, gems & jewellery, leather, and chemicals, Indian IT firms also face pressure from a steep one-time H-1B visa fee. These measures have triggered FPI outflows, rupee depreciation, and stress in export-oriented industries, with gems and jewellery hit hardest. However, domestic demand, corporate balance-sheet strength, and government capex continue to support resilience. India is diversifying exports to other markets while awaiting further negotiations with the U.S. for broader tariff relief and trade normalisation.

Equity market strategy navigating the way forward -

Our equity market strategy adopts a balanced approach amid strong domestic fundamentals and global headwinds. We remain overweight on domestic cyclicals-large-cap banks, capital goods, autos, and industrials-driven by robust capex, resilient demand, and GST-led efficiency gains. Consumer staples and select discretionary stocks benefit from low inflation and higher real incomes. In exporters, preference stays with IT firms having strong annuity revenues and cloud exposure, while caution is warranted in tariff-exposed sectors like textiles and gems & jewellery. In midand small-caps, focus remains on quality compounders with pricing power. With volatile FPI flows, staggered investments and liquidity buffers are advised.

Conclusion -

Q2 FY26 reaffirms India's strong domestic resilience amid rising global uncertainties. Robust GDP growth, benign inflation, GST rationalisation, and supportive policy stance provide a constructive backdrop for markets. While U.S. tariffs and global trade frictions pose near-term challenges, India's strong domestic consumption, investment momentum, and resilient financial flows underpin stability. The divergence between domestic and export-oriented sectors may widen, but disciplined allocation toward quality, large-cap domestic cyclicals and selective exporters offers balance. India's long-term growth story stays intact, offering attractive opportunities for long-term investors.

Thank you for your continued confidence. As always, we remain committed to serving your long-term investment goals with clarity and conviction.

Wishing You All A Very Happy Diwali!