Market Review - July 2026

Jul'26 saw renewed escalation of conflict in West Asia, disrupting energy supply chains which led to higher crude oil prices. US GDP growth slowed to 1.5% in Q2CY26 from 2.1% in Q1CY26. While higher imports weighed on headline growth, underlying domestic demand remained resilient, supported by strong consumption and investment activity. Moreover, labour markets in US continue to show resilience with stable unemployment rate. The Eurozone recorded its strongest expansion in manufacturing PMI in recent months; however, the improvement was largely driven by the clearance of existing order backlogs rather than a meaningful pickup in fresh demand. Meanwhile, China's manufacturing sector slipped back into contraction territory as weakening demand continued to weigh on activity.

US CPI inflation moderated in Jun'26 with fall in both headline and core inflation. The FOMC kept its policy rate unchanged at 3.5%-3.75%, in its July 2026 meeting with three dissenters voting for 25 bp of rate hike. Other major central banks like ECB, BoJ and BoE also kept policy rates unchanged in their July 2026 meeting.

Economic activity in India remained resilient in July 2026: The high frequency indicators for July suggest that economic activity continue to hold up well. Vehicle registrations and power demand recorded another month of strong growth, along with pick-up in GST collections. Manufacturing and services PMI moderated in July 2026 compared to June 2026 but remain in expansion zone.

Source: www.gstn.org.in, www.icegate.gov.in, CMIE, PIB, RBI, www.vaahan.parivahan.gov.in, www.posoco.in 
*GST collections for the month is for economic activity in the previous month. ^Number >50 reflects expansions and number <50 reflects 
contraction compared to previous month. @ - figures are preliminary data and are subject to revision. ** based on CMIE survey

Going forward, growth is likely to remain steady on the back of sustained demand momentum. A likely deal between US & Iran and resultant restoration of supply chains will also be positive from growth perspective. However, prospects of lower-than expected south-west monsoon, and flare up in geo-political tensions remain key risks for growth this year.

Government expenditure growth on a strong footing: Total Government expenditure has grown by 11% YoY in 3MFY27 driven by robust capex growth. On tax collections front, while direct tax collections have been strong led by corporate taxes, indirect tax collections have contracted due to reduction in GST and excise duty rates. Fiscal deficit (as % of budgeted) during the first 3 months of this fiscal has been similar to same period last year. Fall in fertilizer and crude oil prices bode well from fiscal deficit perspective and any minor shortfall in tax revenue can be met through economic stabilisation fund and/or expenditure rationalisation. There is also a likelihood of disinvestment receipts exceeding budget estimates, which could be used to cover any shortfall in tax revenue.

Source: CMIE Note: YoY: Year on year growth

CPI inflation picked up in June 2026: CPI inflation rose in June on the back of rise in food and fuel prices. However, core inflation (ex-food and fuel) was steady at 3.9%. Core inflation excluding precious metals rose by 10bps to 2.2% due to rise in various goods and services prices but remains subdued.

Going forward, inflation is likely to inch up in FY27 on adverse base effect, and a prospect of a below normal monsoon but is likely to be within the RBI's tolerance band. The geo-political situation and monsoon progress remains key monitorable from an inflation perspective.

Source: CMIE; @-CPI excluding Food, Fuel & light, Food services, Petrol, Diesel, Gold and Silver

Trade deficit inches up in June 2026: Trade deficit rose in June 2026 due to rise in Non-Oil Non-Gold (NONG) imports even as net gold imports fell and net oil imports rose only marginally during the month. Higher NONG imports in turn were driven by significant jump in electronics imports. Notably, merchandise exports have registered a growth of 16.1% YoY in Q1FY27 compared to growth of 1.4% YoY during same period last year. Going forward, upward pressure on trade deficit is likely to ease on back of healthy merchandise exports growth and a likely truce between US and Iran and resultant fall in crude and other commodity prices. Moreover, healthy growth in services exports will help keep CAD within manageable levels.

Commodity prices increased in Jul 2026: As tensions in West Asia escalated following a brief period of relative calm, crude oil prices surged to USD 90/bbl. Industrial metals exhibited mixed trends, with steel prices declining, while zinc, copper, and aluminum prices registering gains.

Source: Bloomberg; *Market prices as on June 30, 2026, ^MoM change, & Change in FY27TD

Summary and Conclusion:

The month of July 2026 saw resumption in hostilities between US and Iran testing the fragile truce and sending crude prices higher as traffic through Strait of Hormuz was disrupted. However, both sides have indicated that a deal could be reached which has resulted in crude prices falling from their peak. Growth in the US so far has held up well on the back of AI/tech related capex and higher consumer spending. Recent data also point towards resilient labour markets conditions in US. Growth in China is following a two-speed path where domestic consumption, investments and property markets are in a slow lane, but exports and manufacturing are holding up well.

Contrary to expectations, growth in India held up remarkably well despite disruptions caused by West Asia crisis. High frequency indicators have steadily improved over the last few months with rural demand continuing to hold up well and urban demand too showing signs of uptick. Inflation remains well anchored and though it's expected to rise from here on due to adverse base effects and deficient monsoon, it's unlikely to increase significantly. RBI has projected an average inflation of 5% in FY27 with risks evenly balanced.

Looking ahead, the medium-term outlook for the Indian economy seems optimistic, in our view. This optimism is driven by steps taken by RBI and Government, opportunities arising from shift in the global supply chain, momentum of private consumption sustaining due to income tax relief and lower borrowing cost and improving corporate profitability. However, flare up in geo political tensions and significantly below normal monsoon remain key risks to growth this year.