Direct Equities: Markets soften amid uncertainty

Uncertainty around the US trade and lack of visibility on tariffs and trade added to the weakness. Domestic Institutional Investors (DIIs) remain steadfast buyers with USD 6.5bn worth buying in Jul and USD 48.5bn worth buying CYTD. On the other hand, CYTD has seen cumulative FII net outflow of USD 10.9bn (Jul saw a net outflow of USD 2.0bn). FIIs transitioned from Net buyers in Q2CY25 to net Sellers in July post stay on tariffs for 90 days, while DIIs maintained consistent buying momentum. Market breadth turned weak in July , as reflected in the BSE Advance-Decline ratio, which stood at 1.21x in May, and 1.09x in June 2025 and 0.95x in July 25.

Highlights

• Structurally foundation remains intact but short-term headwinds—including final tariff deal with US, rich mid/small-cap valuations, soft results season and muted private capex/consumption—are likely to cap near-term upside.
• We expect sideways-to-mildly-positive returns over the quarter, led by large caps, with mid/small caps under pressure due to premium valuations and profit-taking.
• Sectors: (1) BFSI & IT offer favorable risk-reward balance (2) Selective plays in Metals, Chemicals and Realty-proxy sectors (3) Potential tactical plays - Media, Auto and Telecom (4) On the sidelines – US-export exposed industrials/manufacturing/pharma/textiles on the back of growth uncertainty.
• Gold prices were down by 0.4% in Jul and up 1.5% in the last three months. Crude oil prices have increased c.18% over the past three months.