Challenges over the last few months instead of reducing, have only increased – yet the markets maintain an unprecedented level of optimism fuelling speculations of a fresh bull rally.
June 2025 was no less than a roller coaster. From manic highs to lows – it had it all. This month saw one of the most dreadful aviation disasters in modern India’s history. Our condolences go to all the grieving family members. May all the departed souls find peace.
This month was also crucial from policy stand-point. The MPC held their Policy Review and slashed repo rate by 50bps to 5.5%, they also cut CRR by a surprise 100bps – all this front-loading is expected to release around ₹2.5 trillion extra liquidity by December 2025 in to the economy. The MPC also changed the policy stance from accommodative to neutral implying a slow and cautious approach to future rate cuts. The timing of these decisions are supported by various high level macro indicators – CPI inflation at 2.8%, which is at a 6 year low; WPI inflation at 14 month low; consumption growth at 7.4%, which is more than the GDP growth rate of 6.5% - happened for the first time in 3 years. RBI has maintained that the economy is expected to grow at 6.5% in FY26.
The move by RBI to cut rates was overshadowed by the news of Israeli strikes on Iranian uranium enrichment sites. The first strike occurred on 13th June 2025 – leading to a surge in crude oil prices by around 11% over 13 days for which the war lasted. Iran being the 3rd largest OPEC oil producer – there were concerns of supply being hampered leading to a surge in prices. Adding to the tensions – the US also launched strikes on Iranian uranium enrichment sites. All the tensions in the middle-east led to the crude surging; silver crossing the ₹1 lakh/kg mark; and gold crossing the ₹1 lakh/10g mark again. During the crisis, Iran was also considering the closure of The Strait of Hormuz – a major bottleneck through which around 20% of the world’s crude and LNG passes. Had it been closed, crude would have crossed $130 levels – leading to a worldwide spike in inflation. It would have been detrimental for India and its growth ambitions as India imports nearly 80% of its crude requirements. While rising oil prices are beneficial for upstream oil companies like ONGC and Oil India; for all the other players where oil is used as an input like aviation and refineries – it is not. A ceasefire after 13 days of hostilities led the markets to take a breather with oil, gold and silver all coming down. Indices across the world rallied, with the S&P and Nasdaq nearing their all time highs. Nifty, on the other hand was consolidating between 24,700 and 25,200 over the past month, but the news of ceasefire and declining oil prices acted as a catalyst and led the Nifty to break the strong resistance at 25,200. Nifty ended June above 25,600, up 4.5% over May – leading to strong performance towards the all-time high level.
Another area of concern for India is the absolute control of China on rare earth metals which is a crucial component in automobile industry, especially EVs. China has put restrictions on exports of these metals due to which several Indian manufacturers have cut down their planned inventory. If there isn’t any deal soon, it could be tough sailing for the Indian automobile sector.
US economy data was also released, the GDP contracted by 0.5% in Q1FY25 and inflation stood at 2.4%, well within Fed’s target range. However, despite the contraction of the economy and inflation being under control – the US Fed has kept the policy rates same. All indicators are pointing towards a rate cut to aid the economy amid an impending slowdown, the Fed is still sceptical about cutting rates, citing that the impact of Trump tariffs on inflation, which are due to come into full force in July first week after being suspended for 90 days, is still unknown. There are rumours that a tentative trade deal has been finalised between India and USA and could be signed as soon as in the first week of July, leading to India avoiding the reciprocal tariffs – however, more details are awaited.
The investors are cautiously optimistic, but all the events that have taken place has set the stage for a renewed bull rally. If the momentum holds, these catalysts can very well lead the markets to a new high.
