Monthly Investment Outlook - July 2026

Market sentiment has improved over the past month, supported by reduced geopolitical risks, moderation in crude oil prices and stability in currency. Domestic growth remains steady, but weak monsoons cause risks to inflation and rural growth. This month, we examine how these shifts are shaping markets and how we are positioning portfolios in response.

Indian equity markets posted positive returns in June. Resolution of the West Asia conflict improved the sentiment and supported a rebound in risk appetite with all major market segments delivering positive returns during the month. Within market caps, small-caps delivered the strongest returns followed by large-caps and then mid-caps.  Globally, equities were mixed with some retracement in technology stocks despite continued resilience in global growth expectations. In fixed income, policy measures announced by the government and the RBI helped bond yields to edge lower as foreign investment flows into debt strengthened.

Resolution of the West Asia conflict led to a sharp moderation in crude oil prices, with Brent crude moving from above USD 110/bbl levels in March to USD 75–85/bbl more recently. This has helped ease concerns around inflation and supported stability in the currency. On the domestic macro front, inflation inched up to 4.4%, driven by food and fuel components, while core inflation remained below 4%. Domestic growth conditions continue to remain resilient despite external headwinds and monsoon‑related risks. Monsoon has progressed across the country, although the cumulative rainfall deficit remains above 10% versus the long‑period average. This could have implications for food inflation and rural demand going forward.

Investor participation remained supportive. Domestic equity investors continued to provide a steady flow of funds, with monthly SIP contributions sustained at around INR 31,000 crores. Foreign investors remained sellers in equities, while flows into debt markets improved meaningfully on the back of recent policy measures.

Source: Bloomberg,
Data: As of 8th July 2026

Our positive view on Indian equities continues. The overall risk environment has improved over the past month on back of moderation in geopolitical tensions and policy measures announced by the government and RBI. This has helped bring some stability to the crude oil prices and the currency. While uncertainties remain, the likelihood of extreme adverse outcomes has reduced, supporting a more stable market environment.

Within equities, we continue to favour mid‑caps. Following the recent market recovery, performance has become more selective. Mid‑caps continue to demonstrate better earnings growth supported by domestic growth trends. In contrast, large‑cap earnings remain relatively moderate, while earnings variability and higher valuations for small-caps still persist.

Within fixed income, our preference for shorter‑maturity investments remains unchanged. Bond yields have moderated over the past month, supported by improved sentiment, easing crude prices, and stronger foreign participation following policy measures. However, the outlook for longer‑duration bonds remains sensitive to inflation dynamics, currency movements, and fiscal considerations. Food inflation risks linked to monsoon variability, along with global interest rate uncertainty, continue to limit visibility for the longer maturity in fixed income. In this context, shorter‑maturity fixed income offers better opportunity for income generation and capital stability.


Thank you for reading our July 2026 Investment Outlook. We look forward to sharing our latest market perspectives with you again next month.

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