Date 18-07-2025      I          View:- Bullish      I Download Full Report   –  Nifty 18-7-25

Market Performance Overview (YTD and Recent Trends)

Nifty 50 has delivered modest gains in 2025 after a shaky start. The index saw a nearly 17% correction early in the year but has since recovered to stand about 17% higher year-to-date. In fact, Nifty rebounded strongly from its March-Apr 2025 lows, climbing to 2025 high. It recently touched a  ~25,669 (mid-July 2025) before entering a consolidation phase. By July 17, Nifty closed around 25,111, off its peak but still up for the year. Overall, the market’s medium-term trajectory remains positive, underpinned by improving fundamentals and liquidity, even as short-term volatility has emerged.

Several factors contributed to Nifty’s performance:

• Strong Rally into Mid-2025: A sharp rebound in Q2 2025, aided by robust foreign inflows and earnings optimism, propelled Nifty to yearly highs.
• Recent Pullback: In July, Nifty has seen sideways-to-negative bias, with profit-booking in heavyweights (especially IT stocks) causing a slight retreat. Immediate support has emerged near the 25,000-24800-24500 levels, while the 26,000+ zone remains a hurdle in the near term.
• Broader Market Resilience: Notably, midcap and smallcap segments have outperformed at times. For instance, the smallcap index posted strong gain even as large-cap rallies moderated. This broader market strength underscores improved risk appetite, though it also warrants caution due to uneven earnings in smaller firms.

In summary, Nifty 50 is up modestly for 2025 so far, hovering just below record highs. The stage is set with a supportive macroeconomic backdrop and earnings recovery, but the index is currently digesting gains as investors await fresh catalysts.

Fundamental Analysis: Macroeconomics, Earnings and Valuations

Macroeconomic Tailwinds: India’s macro environment in 2025 has been highly supportive for equities. GDP growth has been robust (around 7.4% in the last reported quarter) and inflation has stayed manageable (~3.1% in May 2025), allowing the central bank to ease policy. The RBI surprised markets with a 50 bps repo rate cut (to 5.5%) in early June, marking the start of an interest rate cutting cycle amid benign inflation. Meanwhile, government finances and policies have provided a boost: strong tax collections, consistent government capital expenditure, and pro-investment reforms are laying a foundation for sustainable growth. For example, the government’s emphasis on infrastructure (roads, railways, defense production) via higher budget outlays and PLI schemes has spurred a multi-sector capex cycle. This virtuous macro setup – high growth, controlled inflation, fiscal support, and monetary easing – has acted as a “powerful tailwind” for the equity market, bolstering investor confidence.

Corporate Earnings and Sector Trends: The earnings outlook for Nifty companies is improving, though recent results have been mixed across sectors. For FY2024-25 Q4 (Jan–Mar 2025), Nifty large-cap aggregate earnings grew about 5.5% year-on-year, while midcaps and smallcaps saw a stronger ~12% YoY earnings growth. Certain sectors have led the earnings momentum:

• Industrials and Infrastructure: Sectors like power, metals, cement, real estate, capital goods and other industrials posted double-digit profit growth in Q4 FY25. These benefited from the capex upcycle and rising demand. For instance, power and metal companies saw robust demand and pricing, aiding earnings. Government infrastructure spending also lifted construction and capital goods firms’ performance.
• Pharmaceuticals and Healthcare: Pharma companies delivered strong growth as well, supported by innovation and export opportunities. India’s rising prominence in global pharma (e.g. recent deals like Glenmark’s cancer drug partnership) has bolstered the sector.
• Consumption and Auto: Thanks to a resilient domestic consumer base, FMCG and auto sectors have seen steady revenue growth. Rising incomes and a post-pandemic demand recovery, especially in affordable housing and autos, are positives. However, margins in some consumer-facing companies were under pressure, and discretionary consumption earnings were tepid in Q4. A normal monsoon and lower interest rates are expected to further support consumer demand (e.g. housing demand is set to surge as home loan EMIs fall).
• Financials: Banks and financial services – the largest Nifty sector – had a mixed showing. Large private banks (HDFC Bank, ICICI Bank, etc.) continued to grow albeit with some margin compression, but certain lenders saw an earnings dip. In fact, financials overall saw an earnings decline in Q4, partly due to higher base effects and isolated asset quality/provisioning impacts (e.g. SBI and IndusInd Bank were noted as significant drags on aggregate earnings). Nonetheless, credit growth in the economy remains healthy, and big banks are well-capitalized. Brokerages maintain a positive stance on large private banks given reasonable valuations and strong balance sheets.
• Information Technology: The IT sector has been a notable laggard in 2025. Export-focused IT services firms face a challenging FY26 outlook amid global slowdown fears, recessionary pressures in the US, and cuts to clients’ discretionary spending. Heavyweight IT stocks have underperformed sharply – for example, TCS is down ~21% in 2025 (as of mid-year), and the Nifty IT index is the worst-performing sector index. Tech majors have flagged project delays and slower deal pipelines due to US–Europe economic uncertainties and even geopolitical tariff issues. This weakness in IT earnings has, at times, weighed on the Nifty’s advances. On the upside, Indian IT companies are investing in new growth areas (cloud, AI, generative AI services), which are expected to drive future growth despite near-term headwinds. Analysts note that select IT firms with strengths in digital transformation and cost-saving tech solutions could see robust demand, as global clients look to optimize operations with AI and cloud adoption.
• Other Sectors: Oil & Gas/Energy companies had a subdued quarter (with some like ONGC seeing profit declines), and consumer staples growth was soft. On the other hand, defense and railway stocks have seen a thematic rally – many companies in these segments surged (some up 30%+ recently) on the back of government orders, indigenization push, and budget increases. While valuations there have become rich, the secular growth opportunity in defense manufacturing and rail infrastructure remains significant.

Overall, Nifty 50 earnings are on an upswing and expected to continue growing into next year. Analysts project about ~11% EPS growth for Nifty constituents in FY26, which would bring Nifty’s aggregate earnings to roughly ₹1,300 (per index share). This earnings growth underpins bullish index targets – for instance, some experts forecast Nifty could reach ~26,600 by end of 2025 (about 6-7% upside from mid-2025 levels) if earnings deliver as expected. Longer-term, if India maintains high growth, markets could revert to higher valuations; one outlook sees Nifty heading towards 27,500 (or beyond) by 2025-end in a bullish scenario.

Valuations: The rally has stretched Nifty’s valuation slightly above historical averages, though not to extreme levels. As of June 2025, the index traded around 21.0 times forward earnings (FY26), compared to a 10-year average around 20.4×. On an FY27 earnings basis it was ~18.5× (vs 17.3× long-term mean). This indicates a mild premium. The recent surge led HDFC Securities to note that “further valuation re-rating appears limited” and that future index gains will likely mirror the trajectory of earnings growth. In other words, with Nifty no longer cheap, fundamental earnings delivery will be key for the next leg of the rally. The market’s price-to-book and yield metrics likewise are in reasonable ranges given low interest rates. It’s also worth noting that a handful of companies contributed disproportionately to earnings growth (for example, just five heavyweight firms – IOC, NTPC, ICICI Bank, Bharti Airtel, and Hindalco – drove a large chunk of aggregate profit growth in recent quarters). This concentration means investors should watch for broader participation in earnings to sustain the rally.

Key Fundamental Drivers & Risks: Going forward, the fundamental outlook for Nifty remains positive but not without risks. On the domestic front, consumption demand, capital expenditure momentum, and bank credit growth are expected to keep supporting corporate earnings. Policy support – such as possible further RBI rate cuts, or government incentives in various sectors – could further boost earnings and equity valuations. Sectors like banking, housing finance, capital goods, defense, pharma, and affordable housing are identified by analysts as having a positive outlook in the coming months. For example, affordable housing is forecast to grow strongly in FY26, aided by urbanization and government schemes, plus lower mortgage rates improving homebuyer affordability.

However, there are risks to monitor:

• Global Factors: Trade policy developments (e.g. the outcome of India–US tariff negotiations and free trade agreements) and geopolitical tensions could impact certain sectors (IT, pharma, export-oriented manufacturing). A slowdown or recession in the US/Europe is a key risk, as it would dampen IT and possibly capital flows.
• Commodity Prices: A flare-up in oil prices or other commodities can reignite inflation and hurt corporate margins, potentially forcing a reversal of the accommodative interest rate trend.
• Monetary Policy: While the RBI has begun cutting rates, any unexpected spike in inflation or US Federal Reserve tightening could limit further rate cuts. That said, current inflation is well within target and “RBI’s measured policy” has kept rates stable, which has been “crucial for long-term equity flows”.
• Earnings Breadth: The market’s strength must be backed by broad earnings growth. The divergence where midcaps outgrew large-caps in Q4 or where a few companies drive profits is not indefinitely sustainable. Any disappointment in Nifty companies’ earnings (e.g., IT project deferrals or banks’ asset quality issues) could temper index gains. Early in the Q1 FY26 earnings season (July 2025), for instance, IT results have been soft (TCS, Wipro flagged delays), and investors are watchful of banking results amid a high base.
• Sector Rotations: 2025 has already seen notable sector rotations – IT and pharma underperformed initially, while auto, realty, FMCG, and select financials provided downside cushion during market dips. If global sentiment improves, IT could stabilize; if not, continued FII selling in IT could drag. Conversely, sectors tied to domestic economy (banks, consumer, infra) may continue to lead if India’s growth stays strong.

In essence, Nifty’s fundamentals are on solid ground: macro stability, improving earnings, and supportive policies form a positive backdrop. Yet valuations are only fair, not cheap, so the index’s “next leg up” likely hinges on delivery of earnings growth and sustained investor inflows. Investors are advised to stay selective and monitor how these fundamental factors evolve.

Conclusion: In summary, the Nifty 50 index stands at an interesting juncture. Fundamentally, India’s solid macroeconomic backdrop (high growth, low inflation, policy support) and improving corporate earnings have justified the market’s rally to record highs. Sectoral trends show a healthy rotation, with domestically oriented sectors picking up slack when global-facing sectors falter, keeping the broader market momentum intact. Valuations are somewhat above historical averages but not in bubble territory, implying that as long as earnings grow as projected (~10-12% annually), the index has room to advance in line with those earnings. Technically, the long-term and medium-term charts are firmly bullish, whereas the short-term chart is consolidating recent gains. Key levels to watch are 25,000 on the downside and ~25,300 on the upside for near-term direction. Derivative indicators reinforce the view of a temporary equilibrium in that range, with low volatility and balanced option positioning. Institutional flows have been a pillar of support – robust domestic inflows and returning foreign investments underscore confidence in Indian equities.

Investors should remain vigilant of risks (global economic news, commodity prices, etc.) but can take comfort in the market’s strong underpinnings. If the current consolidation resolves to the upside – for instance, a breakout above 25,350 coupled with renewed FII buying – Nifty could quickly retest highs and move towards the optimistic targets (~26,600 or even 27,000+) projected by some experts. Conversely, if support around 24,900/25,000 fails due to any adverse development, a deeper correction to 24,500 or lower (perhaps the 50-day MA or 200-day MA levels) could ensue, which nonetheless would likely attract value buyers given India’s structural story.

In conclusion, the Nifty 50’s outlook appears positive over the horizon, with strong fundamentals acting as a backbone, and technicals indicating an uptrend intact. The current phase of consolidation can be seen as the market’s way of digesting gains and rotating to stronger hands. Prudent market participants will watch the aforementioned levels and indicators for the next cue, but maintain a constructive stance – much like the institutional investors who continue to “buy the dip” and underpin this market rally. As the saying goes, trends in motion tend to stay in motion, and at this point, Nifty’s bull trend remains in motion, supported by both fundamental conviction and technical strength.

Sources:

• Mint Market.
• HDFC Securities strategy note, Mint (June 2025) – data on sectoral earnings growth, Nifty valuations, and preferred sectors.
• Moneycontrol Trade Setup (July 17, 2025) – technical analysis of Nifty’s daily trend, support/resistance, and indicator status (RSI, MACD), plus detailed F&O open interest data and sentiment indicators (PCR, VIX).
• Closing Bell report, Moneycontrol (July 17, 2025) – market close commentary, sectoral movers (IT weakness vs. strength in realty/metal/pharma) and expert quotes on market dynamics.
• GoodReturns article (July 17, 2025) – YTD performance context and forward-looking perspectives (index targets, key sectors like banks, defense, pharma, etc.).
• Livemint report on TCS/IT sector (April 2025) – details on IT sector challenges and TCS stock performance YTD.
• NSE & Moneycontrol FII/DII data (Jan–Jul 2025) – figures on institutional net purchases/sales in equity market. These combined sources provide the comprehensive fundamental and technical evidence for the analysis above.

Analyst Name: Pradeep Suryavanshi

Bestmate Investment Services Pvt. Ltd.:
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Email: pradeep@bestmate.in

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