May 2025 witnessed the Indian stock markets extending their upward momentum, buoyed by consistent capital inflows and improved domestic sentiment. In its latest monthly commentary, HSBC MF (Mutual Fund) highlighted that the benchmark indices posted respectable returns—1.7% for the BSE Sensex and 1.9% for the NSE Nifty. However, the real surge came from the broader markets: the NSE Midcap index climbed a solid 6.0%, while the BSE Small cap index soared 10.6%, reflecting robust investor appetite for emerging opportunities.
This rally, HSBC MF noted, has unfolded despite persistent global uncertainties. While earnings expectations for the Nifty in FY26 have been slightly tempered, valuations appear broadly rationalised. The Nifty’s one-year forward PE multiple stands at 20.4x—well-aligned with its five-year average and about 10% above its ten-year average. This indicates that markets are no longer overheated and may now grow in tandem with economic fundamentals.
Sectoral Trends Showcase Economic Confidence
Among sectoral performers, Capital Goods led the way in May, followed by strong showings in Realty, Metals, IT, and Auto—highlighting investor belief in a revival of infrastructure and core industries. Healthcare and banking also posted modest gains, while FMCG saw a decline, likely due to near-term rural demand softness. However, this trend could reverse if the monsoon proves favourable.
HSBC MF also underscored the potential of emerging themes, such as India’s deeper integration into global supply chains. With multinationals diversifying away from China, India stands poised to attract new investments, particularly in electronics, semiconductors, and green energy—sectors that are expected to benefit significantly from this structural shift.
External Headwinds Persist, But India Stays the Course
While domestic indicators remain promising, HSBC MF does not discount the impact of external risks. The global economic environment is far from settled. Geopolitical tensions, weakening global trade, and the looming threat of new tariff regimes—particularly from the US—are fuelling protectionist trends. These developments could potentially disrupt global investment decisions.
Yet, India continues to shine. The economy registered a robust 7.4% GDP growth in Q4 FY25, reaffirming its status as one of the world’s fastest-growing major economies. Recent tax reforms aimed at boosting private consumption, combined with the Reserve Bank of India’s accommodative monetary stance, are laying the groundwork for sustained growth.
With expectations of a 50-basis-point interest rate cut by the RBI, along with the tailwinds of softening crude oil prices and a weakening dollar, both businesses and consumers could see significant relief. Strong GST collections and vibrant real estate demand further point to the resilience of the domestic economy.
Momentum Holds Despite Global Noise
In conclusion, HSBC MF’s optimistic view of Indian equities is grounded not in speculative frenzy, but in tangible fundamentals, measured valuations, and macroeconomic strength. India is demonstrating its ability to maintain economic stability amid global volatility by leveraging internal momentum.
Global risks are real—but India’s growth story is increasingly powered by domestic resilience rather than external dependency. With a sound policy framework, sustained infrastructure investments, and growing investor confidence, the Indian market appears well-positioned for continued growth. As HSBC MF suggests, this rally has substance—and the smart money seems committed to staying invested for the long term.
