Monthly Market Outlook July 2026 By Prateek Agrawal

Dear Investor

In this piece let us discuss the following:

• Geo-Politics continue to provide a lot of volatility to the markets
• Summers are elongated and hot. A cause for concern for some but opportunity for some
• INR may stabilize on new initiatives on NRI deposits
• Indian Equities as an asset class: current valuations and long-term opportunities
• It continues to be time for alpha

Geopolitics continue to provide a lot of volatility

The month of June saw crude retrace back to below USD80/bbl, a level which is sustainable for an economy like India. However, while prospects of an agreement between Iran and the US are high, the agreement still needs to happen and Strait of Hormuz needs to stay open. Else we could again see an oil price spike.

One of the ways to insulate a country against the oil price increase is to electrify with domestic fuel sources which inc ludes solar, wind (and hence BESS {Battery Energy Storage}), coal, biomass, etc. It may also mean policy impetus to move away from fossil fuel vehicles to EVs.

Also, with two major wars going on in the world, there are learnings that every country is deriving from them, and preparing to defend against them. This may cause a round of defence spend, sustained over time. As crude recedes, and governments are surer of their cash flows, defence ordering may be supported by fiscal conditions and policy priorities. Above themes find representation in many of our portfolios.

Summers are elongated and hot. A cause for concern for some but opportunity for some. Inflation can help government finances

This year monsoons are delayed and temperatures have risen to record levels in many parts of the country. This has increased demand for cooling appliances and the power to run them. Power demand has grown at a fast clip. Peak electricity demand hit an all-time high of 270.8 GW in May 2026. Cooling demand is more required in day time. Incidentally this is when solar generation is high. Solar is also quick to install. As conversations move towards meeting peak demand which may be during the middle of the day vs in the evening now, the lens with which solar generation is seen may change.

Hot summer feeds into the same power theme as geopolitics.

However, hot summers have raised concerns on crops and fertilizer demand and inflation. These are valid concerns and the degree of impact would depend on the degree of rain shortage in areas which are mostly rain-fed vs irrigated. Government may have to extend a helping hand which could have implications for government finances, particularly following periods of elevated oil prices.

There is a silver lining to delayed monsoons. Economic activity may continue at relatively higher level. Monsoons dampen construction, mining, and power demand. GDP growth can be affected by such seasonal factors. This year it is the opposite and we may expect to see relatively higher GDP numbers over the next quarter, provided monsoon don’t completely fail. This may support government incomes also.

Inflation again, on lower monsoons and INR depreciation, is a tailwind on profits and government finances.

INR may stabilize on new initiatives on NRI deposits and drop in crude prices

One reason for strong FPI selling was continuous INR depreciation. INR depreciation may have run its course after the rollout of NRI deposit scheme which should result in strong inflows of USD. Also, as oil drops, the stress on forex on high oil prices would subside. A stable to strengthening INR may be a factor considered by foreign investors while evaluating Indian assets again.

Indian Equities as an asset class: current valuations and long-term opportunities:

Indian equities have been amongst the worst performing asset class of past year and half. During this period, earnings have continued to move up and outlook remains supported by factors such as weaker INR and inflation apart from volume growth. Valuation has corrected and our premium to emerging market equities is at a 10-year low. A drop in oil prices may lead make FPIs also to re-evaluate Indian equities. It is well known, that we benefit the most from lower oil prices. A drop in oil prices to February levels should may enable the large cap indices to rise to February levels as well and then it may follow earnings over the next period.

Banks and IT, two dominant spaces in the large cap indices have seen a strong correction and while we may prefer spaces delivering stronger growth, these spaces may be appealing to value investors.

Valuations may provide support to large cap indices, though market movements will depend on multiple factors.

It continues to be time for alpha

We believe that markets move up on account of growth in earnings and cash flows over a period of time. This means that spaces where growth is higher and sustains for longer may have the potential for providing excess returns (alpha).

The current period is witnessing high amount of disruption and Value Migration. For example, ICE vehicles are slowly seeing market share move to EVs. March of Online over brick and mortar continues. Consolidation in builders continue as buyers prefer big stable brands over smaller builders. Defense indigenization is gaining strength. Renewables are seeing continuous policy support. We may expect to see policy support for BESS and EVs may also influence growth in these segments relative to traditional coal-based power.

Some Value Migration spaces may be at the far end. For example, for a long while, private sector banks were winning market share over PSU. This movement has now slowed. Similarly, the IT offshoring move is now in its mature phase. AI is disrupting traditional software writing while providing tailwinds to power generation and data centres. We have avoided exposure to spaces where Value Migration tailwinds are getting weaker, in our house.

The beneficiaries may provide the same combination of high growth and longevity that spaces like software and private sector banks provided in the past

For relatively stronger performance, supply of paper should also be kept in focus. Unlike last year when mid and small caps saw a strong equity issuance, this time around, large caps are raising funds. This may aid relative broader market performance and be tailwinds for alpha.

Thank You

Happy investing

May the Good Times Continue 😊

Source: MCX India, Bloomberg, MOFSL, RBI, NSE Indices. Data as on June’26.

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