1. Equity Markets Retreat as Bajaj Finance Drags Sensex, Nifty Lower
On July 25, Indian equity markets slipped modestly: the Sensex declined 0.45% to 81,807, while the Nifty 50 fell 0.53% to around 24,931. The key trigger was a slide in Bajaj Finance stock, which dropped nearly 5% amid emerging concerns about asset quality in its MSME lending arm. Despite a strong earnings beat, investor sentiment turned cautious.
Sector-wide weakness was evident, with 13 out of 16 indices ending in the red, notably mid-cap and small-cap stocks. Earnings reports from Nestlé India also disappointed, adding to market softness. In contrast, SBI Life Insurance gained about 2.5% on strong policy renewal-led profits, Trident shares jumped 4.7% on a robust quarterly report and India-UK trade optimism, and Indian Energy Exchange rebounded nearly 9%. The new India‑UK Free Trade Agreement (FTA) lifted sentiment, though broader investor optimism hinges on clarity on trade deals with the U.S.
2. Rupee Weakness Continues Amid Capital Outflows and Trade Uncertainty
The Indian rupee dropped to a one-month low of ₹86.5775, before recovering to around ₹86.51 by the close. The decline was driven by foreign portfolio outflows, weakened equities, and traders reducing bullish rupee positions. Expectations that the currency could test ₹86.70–86.80 levels persisted.
The broader Asian currencies were under pressure, down 0.1–0.3%, while the U.S. dollar index rose to 97.5. Market sentiment remained cautious due to looming U.S. trade deadline, upcoming tarriff actions, and Federal Reserve policy decisions.
Institutions like Barclays assessed the rupee’s slide as “overdone” and nearing short-term limits, cautioning potential further depreciation toward ₹87. Contrarily, Bank of America remains bullish, forecasting a rebound to ₹84 by late 2025 based on strong inflows and potential dollar weakness.
3. RBI Liquidity Operation Draws Attention—Reverse Repo Absorption at ₹1.25 Lakh Crore
The Reserve Bank of India conducted a major Variable Rate Reverse Repo (VRRR) operation, absorbing around ₹1.25 lakh crore from the banking system. This follows earlier liquidity injections of ₹50,000 crore and overnight operations aimed at stabilising system liquidity.
These operations signal RBI’s cautious stance in managing surplus funds, balancing inflation expectations and credit transmission.
4. Inflation Remains Subdued—SBI Forecasts FY26 CPI Below RBI Target
India’s retail inflation continues on a downward trajectory. June’s CPI was reported at 2.10%, a six-year low, driven by sharp declines in food prices. SBI predicts inflation for July may fall further, bringing the FY 2025–26 average below the RBI’s 3.7% projection.
The Reuters poll indicates policymakers anticipate no rate change in the August MPC meeting but expect a potential 25 bps cut later in the year, assuming inflation remains well-behaved. GDP growth of approximately 7.4% in Q1 lends support to a neutral-to-accommodative stance.
5. Bond and Credit Markets: Corporate Issuance Hits Record, Short-Term Bonds in Focus
India’s corporate bond market, currently valued at ₹53 trillion, hit a record ₹10 lakh crore in new issuance during FY 2024–25. Despite rapid growth, corporate bonds still account for only 10–15% of corporate funding, significantly lower than global norms.
Investors are showing preference for short- and medium-term bonds, given surplus liquidity, limited upside in long-duration securities, and caution amid global yield volatility.
Final Word
July 25, 2025 reflects a cautious, transitional phase for financial markets. Equities retreated on company- and sector-specific concerns, while the rupee came under pressure from capital outflows and global macro uncertainty.
Still, disinflation and strong earnings support the broader outlook. Corporate bond market expansion and RBI liquidity moves underline greater market depth and policy flexibility.
As investors navigate near-term risk corridors, short-duration fixed-income instruments, defensive portfolio positioning, and timely monitoring of global cues remain key tactical considerations.
