By Research desk
May 2025 Market Performance Recap:
The Indian stock market demonstrated resilience and positive momentum in May 2025, ending the month with gains across key indices despite periods of consolidation. The benchmark NIFTY50 concluded May with approximately 1.7% gains, while the BSE SENSEX also showed a positive trend for the month. As of June 9, 2025, Nifty 50 closed at 25,103.20 and Sensex at 82,445.21.
The broader markets significantly outperformed the frontline indices in May, signaling a broad-based recovery and investor confidence. The broader Nifty 500 also gained 3.50%. This strong performance in the broader market indicates robust investor interest beyond large-cap stocks.
Key catalysts for market movement included global cues and crucial domestic policy decisions. The RBI Monetary Policy Committee (MPC) Meeting on June 6, 2025, was a major event that significantly influenced market sentiment. The RBI made a more aggressive-than-expected policy announcement, lowering the repo rate by 50 basis points (bps) to 5.5%. This was coupled with a surprising 100 bps cut in the Cash Reserve Ratio (CRR), scheduled to inject ₹2.5 trillion of liquidity into the financial system by December 2025. Investors largely cheered these moves, boosting sentiment and sparking hopes of renewed credit offtake, especially benefiting banking and real estate sectors. Optimistic openings in Asian markets due to positive U.S. economic data and renewed trade hopes, alongside gains in European stocks from a U.S.-UK trade deal, also provided supportive global tailwinds.
Foreign Institutional Investors (FIIs) showed mixed activity in May, often being net sellers on several days, but DIIs consistently provided strong buying support. For instance, on May 29, 2025, FIIs were net sellers with ₹6,449.74 crores, while Domestic Institutional Investors (DIIs) were strong net buyers with ₹9,095.91 crores. In early June, post-RBI action, FII activity has shown signs of turning positive, with FIIs becoming net buyers on some days, likely influenced by the RBI’s rate cuts and improved sentiment, while DIIs continued their robust support.
Overall, May 2025 saw a resilient performance backed by strong domestic fundamentals and the RBI’s accommodative stance. The market sentiment appears moderately bullish, with a close eye on the sustained impact of the rate cuts and ongoing global developments.
Sectoral performance
In May 2025, Indian equities exhibited a mixed sectoral trend, reflecting diverse market drivers from policy actions to global developments. The standout performer was the defence sector, which rallied an impressive 21.8% on the back of a strong policy push for indigenisation, record MoD contracts, and heightened geopolitical tensions. Real estate gained 7.17%, supported by robust demand and expectations of improved financing conditions following the RBI’s rate cuts in early June. Metals advanced 7.12% amid rising global commodity prices and firm domestic steel demand projections. The energy sector rose 4.78%, driven by the government’s renewable focus and long-term growth prospects, while autos climbed 4.56% on healthy sales, rural recovery, and EV momentum. IT rebounded 4.27%, aided by upbeat earnings and improved global tech sentiment. Banks saw a modest 1.2% gain, with optimism building after the RBI’s policy shift. Consumer durables rose slightly by 0.7%, constrained by high valuations and mixed demand trends.
On the flip side, FMCG was among the weakest performers, declining 2.06% due to slower volume growth, cost pressures, and tepid rural sentiment. Healthcare slipped 1.16% as investors booked profits and earnings remained muted, with rising costs and increasing competition adding to the pressure.
In the following sections, we provide a more comprehensive examination, outlook and detailed insights of some major sectors:
Auto:
The Indian auto sector delivered a stable performance in May 2025, with wholesale volumes rising 9.8% YoY, supported by broad-based growth across segments. Two-wheelers (2Ws) led the recovery, benefiting from robust rural demand, seasonal factors like weddings, and post-harvest income flows. Passenger vehicle (PV) volumes were relatively muted, affected by a high base and cautious consumer sentiment, though exports saw a sharp uptick.
Retail trends were softer, with total vehicle registrations declining ~4% YoY, largely due to a dip in PV registrations (down 8.6% YoY) and subdued financing conditions. In contrast, EV sales grew 16.1% YoY, driven by expanded model availability and increasing competition, especially in the 2W segment. However, recent global supply chain issues related to rare earth metals may pose near-term risks to EV production.
Commercial vehicles (CVs) posted modest growth, backed by improving infrastructure activity and increased government spending. However, retail demand remained patchy, with muted fleet replacement and limited pre-buying ahead of upcoming regulatory changes.
The tractor segment remained resilient with moderate growth, supported by favourable reservoir levels, healthy procurement trends, and a positive monsoon forecast.
Demand momentum remains intact across most auto segments, aided by rural recovery, seasonality, and policy support. Key monitorables include monsoon progress, interest rate trajectory, and potential disruptions in EV supply chains.
Metals:
The metal sector gained ground in May, but underlying fundamentals suggest a more balanced outlook going forward. Domestic steel prices softened by 2.1% month-on-month to ₹51,400 per tonne, largely due to a seasonal slowdown in construction activity with the early arrival of the monsoon and tighter market liquidity. On the global front, steel production saw a broad-based decline—China’s output fell by 7.3% MoM, and overall global production dipped 6.3% MoM—highlighting subdued demand from major consuming sectors. Despite flat Chinese steel exports, rising U.S. tariffs have reignited trade concerns, adding pressure to international pricing.
On the input side, costs moved favourably for producers—iron ore and coking coal prices dropped by 4.6% and 2.0% MoM, respectively, which could aid margins in upcoming quarters. In the non-ferrous space, aluminium prices climbed 2.8% following fresh tariff hikes in the U.S., while copper surged 4.1% as inventories tightened sharply at LME warehouses. Zinc too saw a mild uptick amid falling global stock levels.
Looking ahead, while India’s long-term demand outlook remains strong—especially with infrastructure-led growth—short-term headwinds like increasing supply and muted global momentum may weigh on price stability. Given these crosscurrents and elevated valuations, we maintain a neutral stance on the sector for now.
Chemicals:
The chemical sector continued to face pressure in May 2025, with weak pricing trends and subdued global demand weighing on performance. While Q4 FY25 showed early signs of volume recovery and sequential margin improvement—thanks to cost control and better plant utilisation—the broader sector remains under strain. Challenges such as Chinese overcapacity, dumping, and sluggish end-user industry demand have kept price realisations muted.
Agrochemicals remained under pressure due to elevated channel inventories and delayed restocking, while the contract development and manufacturing (CDMO) segment for pharma showed strength, backed by a healthy order pipeline and consistent growth visibility. On the global front, European competitiveness remains low due to weak demand and high energy costs, further impacting petrochemicals and basic commodities.
In terms of product pricing, the month saw mixed trends—refrigerants and caustic soda remained firm, while acetone, ethanol, methanol, aniline, and phenol declined. Palm oil prices rose due to higher import duties, and bromine remained stable.
Looking ahead, a meaningful recovery will hinge on global demand stabilisation, easing of Chinese competitive pressures, and a revival in industrial end-use segments. Importantly, India’s structural shift from bulk to specialty chemicals is expected to drive long-term growth, supported by global customers adopting China+1 sourcing strategies. Despite short-term volatility, the medium- to long-term outlook remains constructive, especially for players focused on value-added, differentiated chemical products.
Banking/Finance:
The banking sector posted a modest 1.2% gain in May, as investors remained cautious ahead of the RBI’s monetary policy announcement. However, sentiment turned sharply positive following the RBI’s unexpected 50 bps repo rate cut and a 100 bps CRR reduction in early June. The CRR move alone is set to release ₹2.5 lakh crore into the banking system, significantly improving liquidity conditions.
These policy actions are expected to lower borrowing costs and drive a revival in credit demand, particularly in retail and SME segments. The shift in RBI’s stance to ‘Neutral’—with inflation projected at 3.7% and GDP growth pegged at 6.5% for FY26—reflects a supportive policy environment for lending growth.
Indian banks are entering this phase with strong fundamentals, including robust capital adequacy, improved asset quality, and record-low NPAs. Private sector and retail-focused banks are well-positioned to lead the next credit cycle. NBFCs are also likely to benefit from the liquidity boost, while the broader financial ecosystem continues to gain from digital acceleration and macroeconomic stability.
Overall, the outlook for the sector has improved meaningfully, backed by policy support, structural resilience, and growing credit appetite.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- In May 2025, the RBI cut the repo rate by 50 bps to 5.50% and the CRR by 100 bps to 3%, marking the lowest borrowing costs since August 2022. With a shift to a neutral stance, total rate cuts since February now stand at 100 bps, aimed at supporting growth amid easing inflation and global trade uncertainty.
- India’s GDP grew 7.4% YoY in Q4 FY25, up from 6.4% in the previous quarter and well above the expected 6.7%, marking the strongest growth of the fiscal year. The rebound was driven by lower food and energy prices, easing interest rates, improved investment activity, and India’s resilience to global trade headwinds due to its low export dependence.
- India’s Composite PMI came in at 59.3 in May 2025, slightly above April’s 59.7 but down from the flash estimate of 61.2, indicating strong overall activity with slower manufacturing growth offset by rising services momentum.
- India’s Manufacturing PMI stood at 57.6 in May 2025, indicating continued strong expansion in factory activity, supported by robust demand and production momentum.
- India’s Services PMI was revised to 58.8 in May 2025, down from the flash estimate of 61.2 but slightly above April’s 58.7, marking the fastest growth since February, driven by rising output and new orders.
Fundamental outlook:
India’s economic landscape continues to shine with a blend of robust growth, controlled inflation, and proactive policymaking. GDP growth for Q4 FY25 stood at a strong 7.4% year-on-year, taking full-year growth to 6.5%. With FY26 projections holding steady at 6.5%, India remains the fastest-growing major economy globally. Inflation has moderated sharply, with April CPI easing to 3.2%—a six-year low—creating room for the Reserve Bank of India to focus on growth. In a major policy boost, the RBI cut the repo rate by 50 bps to 5.5% in June, its third consecutive cut, supporting credit expansion and market sentiment. Fiscal consolidation also remains on track, with the FY25 deficit at 4.8% and a tighter 4.4% target set for FY26.
Externally, the current account remains well managed, with the FY25 CAD at just 0.8% of GDP. Industrial and corporate data further affirm resilience—April IIP rose 2.7%, and corporate earnings reflected healthy topline growth of 6.2% with margin improvement. Foreign investors have returned, led by strong inflows in capital goods, telecom, and financials. Domestic institutional participation has grown to nearly match that of FIIs, providing additional market stability. The improving labour market—with unemployment down to 3.2%—adds another layer of support to consumption-driven sectors. Overall, the fundamentals point to a sustainable and broad-based growth cycle, underpinned by prudent fiscal and monetary management and improving investor confidence.
Technical outlook.
Indian equities are technically strong, with the Nifty 50 and Sensex hovering near record highs at 25,100 and 82,400, respectively. The Nifty remains well-supported at the 25,000 psychological level, with firmer support around 24,200–24,500, while immediate upside targets are seen at 25,700.
Momentum indicators reinforce the bullish trend. The Nifty is trading above all key EMAs—20, 50, 100, and 200-day—indicating strong trend continuity. The RSI lies between 61, suggesting sustained strength though entering overbought zones, which could prompt brief consolidation phases. MACD shows a bullish crossover across a wide range of stocks, further confirming upward momentum. With India VIX around 16.08, volatility remains moderate, implying that markets are steady with manageable risk.
Adding to the strength of the technical setup is the consistent performance in tax collections. April 2025 saw a record-high monthly GST collection of ₹2.36 lakh crore, driven by year-end filings and better compliance. May 2025 followed with ₹2.01 lakh crore, the second-highest ever, supported by IGST on imports and strong domestic trade. Notably, GST revenues have remained above ₹1.7 lakh crore for over nine consecutive months, indicating a resilient consumption base and reinforcing confidence in the economic recovery.
Outlook for the Global Market
US Market:
US Market Navigates Crosscurrents of Moderating Inflation and Economic Slowdown
The US market is at a pivotal juncture, grappling with a mix of encouraging inflation data and signs of a cooling economy. While the headline inflation figures have shown a welcome decline, underlying economic indicators and a cautious Federal Reserve are tempering investor optimism. The outlook for the remainder of 2025 will largely depend on the central bank’s ability to orchestrate a “soft landing” – bringing inflation back to its target without triggering a significant recession.
Recent data paints a complex picture. The annual inflation rate, as measured by the Consumer Price Index (CPI), eased to 2.3% in April 2025, its lowest level since February 2021. This has been a key driver of positive market sentiment, fueling hopes that the Federal Reserve’s aggressive rate-hiking cycle may be nearing its end. However, the market is anxiously awaiting the May CPI data, scheduled for release tomorrow, with forecasts suggesting a potential slight uptick.
The labor market, a cornerstone of the US economy, is also showing signs of moderation. The May jobs report indicated the creation of 139,000 jobs, a figure that suggests a resilient but cooling employment landscape. Initial jobless claims in early June have remained relatively low, further supporting the narrative of a gradual economic slowdown.
In the equity markets, performance has been mixed. After a strong start to the year, US stock market capitalization saw a slight decline through May 2025, even as global markets experienced a rally. The S&P 500 currently sits just below its all-time highs, with sectors like Materials and Energy recently outperforming, while Financials have lagged. Market analysis from Morningstar suggests that the overall market is trading at a modest discount but warns of heightened volatility ahead. Their recommendation is to favor value and small-cap stocks, which may be better positioned in the current environment.
All eyes are on the Federal Reserve, which maintained its key interest rate at its May 2025 meeting, adopting a “wait and see” approach. The central bank has acknowledged the dual risks of persistent inflation and a potential rise in unemployment, with trade policy adding another layer of uncertainty. The minutes from the May meeting and the New York Fed’s latest Survey of Consumer Expectations, which showed a decrease in household inflation expectations, offer some insight into the Fed’s thinking. However, the upcoming Federal Open Market Committee (FOMC) meeting and its updated economic projections will be critical in shaping market expectations for the path of monetary policy.
The bond market reflects this uncertainty, with the 10-year Treasury yield experiencing significant volatility. After peaking in January 2025, the yield has remained a focal point for investors, with its movements closely tied to inflation expectations and the Fed’s anticipated actions. As of early June, the 10-year yield has been trading in a range, reflecting the market’s indecision.
Looking ahead, the US market is likely to remain data-dependent. Key releases to watch include the upcoming May CPI report, retail sales figures, and manufacturing and services indices (PMI/ISM). These will provide a clearer picture of the health of the consumer and the broader economy, and will undoubtedly influence the Federal Reserve’s next steps. Investors are advised to maintain a balanced portfolio and brace for continued market fluctuations as the economic narrative unfolds.
Outlook for Gold
Gold remains bullish for the second half of 2025, supported by strong domestic fundamentals and favourable global cues. After a brief consolidation, prices are expected to trend higher, driven by robust investment demand, an above-normal monsoon, and continued buying by the Reserve Bank of India.
As of June 10, 2025, 24-carat gold trades at ₹97,580 per 10 grams, following recent volatility. Long-term targets hover around ₹1,06,000. A good monsoon is set to boost rural demand during the festive season, while the RBI has added nearly 58 tonnes of gold to its reserves in FY25, reinforcing long-term support.
Though high prices have slightly reduced jewellery sales, demand for gold bars, coins, and recycled jewellery remains strong. The rupee’s stability near ₹85-86 has kept import costs manageable, though gold imports saw a temporary dip in April.
Globally, expectations of U.S. rate cuts and geopolitical uncertainties continue to favour gold. Overall, the outlook remains optimistic, with temporary corrections likely amid an otherwise strong upward trend.
What should Investors do?
The Indian equity market is currently bolstered by robust macroeconomic fundamentals, including strong GDP growth, easing inflation, and a supportive monetary policy, highlighted by the RBI’s recent 50 bps rate cut. Additionally, a stable fiscal outlook, significant institutional inflows, and record GST collections further reinforce the market’s resilience. While equity indices like the Nifty and Sensex are trading near all-time highs, valuations are elevated, with the Nifty at approximately 22x forward P/E, suggesting limited scope for sharp near-term gains.
Therefore, the Nifty is anticipated to remain range-bound with a slight upward bias in June. Investors are advised to adopt a “buy-on-dips” strategy, prioritizing fundamentally strong sectors such as NBFCs, affordable housing finance, consumer discretionary, auto, real estate, capital goods, tourism, and building materials, which are expected to benefit from lower interest rates, increased consumption, and government infrastructure spending, while avoiding aggressive entry at current high levels.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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