Inflation Drops, But So Do Indices

Inflation eased, rate cut hopes rose, and volatility dipped, yet markets stayed cautious amid bleeding in IT and banking sectors [EasyDNNnews:PaidContentStart]

The Indian equity market navigated a largely negative trajectory during the last fortnight, with benchmark indices coming under sustained pressure amid global uncertainty, sector-specific concerns, and profit booking. The BSE Sensex and Nifty 50 both tumbled around 2 per cent, marking a period of consolidation after a strong run in the previous months.

Broader market participation remained selective. The BSE Mid-Cap Index ended with marginal losses, while the BSE Small-Cap Index posted a muted gain of nearly 1 per cent, suggesting that investors stayed cautious and focused on stock-specific opportunities rather than taking broad exposure across segments. A key positive during the fortnight came from macroeconomic data.

India’s retail inflation for June 2025 eased notably to 2.10 per cent, the lowest level in six years and the weakest reading since January 2019. The easing price pressure sparked hopes of a potential rate cut by the Reserve Bank of India (RBI) in its upcoming August policy review. Rate-sensitive sectors such as FMCG and real estate responded positively to the improving outlook.

In the FMCG space, Hindustan Unilever Ltd (HUL) made headlines with its shares rallying nearly 5 per cent in a single day, following the announcement of Priya Nair as the company’s new Managing Director & CEO. Her appointment, viewed as a strategic shift with potential to drive innovation and growth, received a strong thumbs-up from the Street. In contrast, the banking and financial services sector witnessed heavy profit booking.

Stocks such as Axis Bank, HDFC Bank, and Shriram Finance were among the top laggards as investors weighed the implications of a rate cut on margins. The information technology sector emerged as the weakest performer during the fortnight, with the BSE IT Index plunging nearly 5 per cent. The decline was triggered by TCS’s Q1FY26 results, which showed a modest 1.3 per cent year-on-year revenue growth; missing Street estimates.

Other IT majors also reported muted numbers, leading to a cautious tone for the sector in the near term. On the liquidity front, the RBI conducted a 7-day Variable Rate Reverse Repo (VRRR) auction, which was oversubscribed, indicating ample liquidity and strong participation. Meanwhile, India VIX dropped to a 15-month low, reflecting reduced volatility expectations.

Foreign Institutional Investors (FIIs) continued to be net sellers, offloading more than ₹11,000 crore, while Domestic Institutional Investors (DIIs) remained supportive with ₹17,800 crore in net inflows.

The outcome of the India-U.S. trade deal will be a crucial growth trigger or potential drag for the markets in the near term, though its direction remains uncertain at the time of writing. Stay tuned for further updates!

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