Nov 18, 2025
• Indian Inc.’s Q2FY26 earnings better than expected so far; Earnings growth likely to pick up in
H2FY26.
• Midcap valuations have eased from September 2024 peak; their earnings growth relatively strong.
• Protest participation is approaching levels where institutional actors start exhibiting a shift
in behaviour
• Long-term fundamentals for Gold and Silver remain intact despite recent pullback.
• Rising unemployment without a drop in inflation could increase the risk of policy missteps in
the US.
Optimism Prevails
Market sentiment remains optimistic, with global equity indices reaching new highs. Easing trade tensions between the U.S. and China, the Fed’s rate cut, and resilient corporate earnings, particularly in the technology sector, have supported investor confidence. However, the lack of U.S. economic data due to the government shutdown leaves policymakers with limited visibility, increasing the risk of policy missteps if the labour market weakens or inflation persists.
In India, sentiment is improving amid policy support. Although the impact may take time to appear in economic data, corporate earnings have begun to recover from a low base.
Global Macro Update
The recent meeting between President Trump and President Xi eased U.S.-China trade tensions, extending the tariff truce and deferring China’s rare-earth export controls for a year. Both sides agreed to strengthen cooperation on Fentanyl control, expand agricultural trade, and finalize a deal on TikTok’s U.S. operations. Yet, key issues remain unresolved, with Chinese exports still facing a 47% tariff. Additionally, uncertainty persists amid the U.S. Supreme Court’s review of President Trump’s use of executive authority to impose tariffs and his record of policy reversals. While markets welcomed the de-escalation, the agreement does not go far enough, and uncertainty is expected to persist.
At its October meeting, the Fed cut rates by 25 bps and formally ended balance sheet tightening. Nonetheless, Chair Powell struck a cautious tone, comparing policymaking amid the government shutdown to “driving in a fog” due to limited data. He emphasized that the December rate cut is far from given. Market expectations for a December rate cut have fallen to 65% from nearly 100% before the meeting. We expect the Fed to hold rates steady in December unless there is a marked weakening in labour market conditions.
Market implied probability of December rate cut has declined
Source: FedWatch Tool, CME Group
Amid the U.S. government shutdown, the official BLS employment report was unavailable. ADP data, however, indicated a modest rebound in the private job market, with 42,000 positions added in October, the first increase in three months. Despite this, other indicators suggest a notable slowdown in hiring. Combined with federal workforce reductions, this trend is gradually driving unemployment higher, even as private-sector layoffs remain relatively low. While tighter immigration policies have partially offset weaker labour demand, preventing a sharp rise in unemployment, overall payroll growth continues to slow.
U.S. CPI inflation in September increased slightly to 3%. However, tariff-related pressures were lower than expected, but structural effects from tariffs are still unfolding. Slower wage growth and easing inflation have kept wage-price spiral concerns in check, but rising unemployment without a drop in inflation could increase the risk of policy missteps. Risks to the U.S. economy are building.
US inflation stable around 3%, could rise on account of tariffs
Source: Bloomberg, Sanctum Wealth
China’s recent plenum offered no major surprises but signalled a clearer, more confident policy direction, emphasizing domestic demand, and technology self-reliance. Fiscal support, moderate monetary easing, and structural reforms aim to sustain ~5% growth and strengthen high-tech supply chains. Measures target household consumption and strategic sectors like AI, semiconductors, biotech, and renewables, while addressing local government debt. The focus remains on long-term strategic goals rather than quick fixes. This is expected to support a gradual yet more sustained economic recovery in China.
Sanae Takaichi’s appointment as Japan’s first female prime minister signals a decisive political shift. A conservative and ally of former PM Shinzo Abe, she has formed a cross-faction cabinet, reflecting a pragmatic approach. Her economic agenda focuses on investment in semiconductors, AI, and defence to boost productivity and strengthen Japan’s strategic position.
Global Market Outlook
Global equity markets recorded strong gains in October 2025, with major indices reaching new highs. In the U.S., technology stocks led the rally, marking the sixth consecutive month of advances. Market sentiment was supported by the Fed rate cut and easing U.S.–China trade tensions. Japanese equities also strengthened following the inauguration of Prime Minister Takaichi. U.S. bond markets were mixed, as the Fed’s rate cut provided support but signals of a possible pause in December tempered optimism.
Source: Bloomberg, Sanctum Wealth Above returns are price returns in USD terms
Nvidia recently became the first company to reach a USD 5 trillion valuation, surpassing the GDP of every economy except the U.S. and China. The combined market cap of the Mag-7 now exceeds USD 20 trillion, larger than China’s and the entire European stock markets. Meanwhile, Hyperscalers continue to ramp up AI-related capital expenditure. Goldman Sachs notes that AI investments depreciate faster than traditional capex, which could start weighing on earnings.
Another key concern is circular financing: Nvidia plans to invest USD 100 billion in OpenAI, a key customer that uses its chips. OpenAI has also committed USD 300 billion to Oracle cloud services that run on Nvidia chips. OpenAI also plans to spend USD 300 billion on AMD chips and received warrants worth one cent per share. Additionally, AI spending is also increasingly debt-financed, with Oracle raising USD 18 billion through bonds and smaller players like CoreWeave securing significant debt to fund their AI ambitions. All of this points to a growing risk in the AI trade.
Elsewhere, Japanese equity momentum may continue under the new prime minister, supported by clearer policy direction, stronger intent, and ongoing corporate reforms. If productivity improvements materialize, the yen could strengthen further. This appreciation in the Japanese yen would enhance returns for investors from India investing in Japanese markets.
Japan equity has rallied over the past few months
Source: Bloomberg, Sanctum Wealth
The Chinese plenum provided no near-term catalysts for equities, with most measures focused on the long term. We remain positive on Chinese equities, especially in technology, from a long-term perspective, as valuation discounts, proactive policies, and selective sector growth offset structural and geopolitical headwinds. Quick gains are likely behind us, and interim volatility from U.S.-China trade tensions may persist.
The U.S. announced additional sanctions targeting Russia’s two largest energy producers, which together account for over 5% of global crude output, pushing WTI above USD 61/bbl. In response to sanctions, Chinese state refiners paused Russian crude purchases, while Indian refiners plan to cut imports by nearly 40%. Yet, past experience suggests such sanctions have limited impact, as oil can be rerouted under other flags, and OPEC still has sufficient spare capacity. Consequently, we are not currently concerned about these measures.
Globally, stress in private credit is emerging. Though the failing companies are small, counterparties like Jefferies and UBS hold significant exposures, reflecting relaxed risk controls during the asset class’s bull run. Regional banks are also facing rising loan-loss provisions and shrinking reserves amid weakening credit quality. We have also highlighted this many times in the Indian private credit market context, where risk controls are becoming increasingly relaxed amid rapid growth.
India Macro Update
Five rounds of the first phase of U.S.-India trade talks have been completed, but no agreement has been reached yet. Although India has signed a 10-year defence deal with the U.S., reaching a comprehensive trade deal could still take time. While the trade deal is unlikely to materially impact the Indian economy or markets, its resolution would likely provide a positive short-term boost to market sentiments.
As highlighted earlier, the impact of the GST rate cut and other policy measures may take time to fully reflect in economic data, which currently remains mixed. IIP grew 4% year-on-year in September, above expectations, while manufacturing PMI eased to 57.7 from 59.3 in August and services PMI declined to 60.9 from 62.9. Both PMIs, however, remain firmly in expansionary territory. GST collections remain below normalized levels but could improve as reforms take effect. Credit growth is recovering from high single digits levels, with analysts projecting an average rise of about 12% in FY2026. Overall, policymakers appear to be ready to do whatever is necessary to support economic recovery.
PMIs have moderated a little, but still in expansion zone
Source: Bloomberg, Sanctum Wealth
Headline CPI inflation eased to 1.54% year-on-year in September, from 2.1%, broadly in line with expectations. Inflation is likely to remain subdued in the near term, though risks include weather-related food shocks, rising global crude, and tariff pass-through. We expect inflation to remain manageable for the RBI, which is likely to stay data-dependent and may hold off on a December rate cut unless growth disappoints.
Indian Market Update
Indian equity markets delivered strong returns in October 2025, outperforming global peers. Large-cap stocks were supported by robust earnings in the financial and IT sectors, which exceeded expectations. Mid-caps outperformed large-caps, driven by stronger earnings growth. Indian bond yields remained largely range-bound. Although the government bond supply for H2FY26 was lower than anticipated, State Development Loan (SDL) issuances surged by nearly 40% year-on-year.
Source: Bloomberg, Sanctum Wealth
Above returns are only price change and not total returns
Equity Outlook
Q2FY26 earnings, so far, have broadly exceeded expectations. Among the 214 Nifty 500 companies that have reported results, revenues have grown by 5% year-on-year, while profits are up 15%. Private sector banks delivered better-than-expected performance, supported by only a marginal decline in NIMs, stable asset quality, and steady loan growth. The IT sector also outperformed expectations despite muted topline growth. FMCG companies reported modest, largely in-line results, with revenue growth expected to pick up as GST-related benefits begin to flow through. Commodity-linked sectors such as cement and steel posted a mixed set of numbers, with select regional players outperforming. Demand conditions were somewhat affected by the prolonged monsoon and temporary channel disruptions ahead of the GST 2.0 rollout.
Nifty EPS downgrades have also tapered over the past month. FY26 earnings growth is expected at around 9–10%, with a recovery anticipated in the second half, driven by an improvement in consumption trends. Looking ahead, FY27 EPS is projected to rise by 13–15%, supported by an anticipated rebound in banking sector profitability and the positive effects of GST reforms.
Meanwhile, valuations remain elevated but have eased since their September 2024 peak, particularly for the Nifty Next 50 and mid-caps. Midcaps are now about 20% cheaper than that peak yet still 20% above their 10-year average. Small-caps have posted negative one-year returns amid declining earnings, pushing valuations higher. Large caps have seen returns broadly in line with earnings growth, leaving valuations near September 2024 levels.
Source: Bloomberg, Sanctum Wealth
Despite muted one-year returns, domestic inflows into Indian equity mutual funds have remained strong, indicating that domestic flows could be becoming more structural. In contrast, foreign investors have been consistent net sellers, with India witnessing nearly five years of negligible foreign inflows. Foreign ownership is at record lows and most global funds remain significantly underweight on India. Elevated valuations and the absence of an “AI trade” domestically have been key headwinds. However, as India has lagged global markets over the last year, relative valuations have improved. As the global “AI trade” moderates and India’s earnings growth improves in the coming quarters, foreign flows could begin to recover.
We maintain a neutral stance on equities due to still elevated valuations and but are no longer underweight midcaps. We expect market performance to be stock- and sector-specific in the near term, driven by earnings and domestic flows. While we generally prefer making few but bigger changes in our asset allocated portfolios, we will take some tactical calls in the near-term to seek absolute returns, as Indian equities may deliver muted gains over the next 12-18 months.
Fixed Income Outlook
Year-to-date, short-term bond yields have declined by more than 100bps in line with RBI rate cuts. In contrast, long-term bond yields (15 years and beyond) have risen, resulting in a steepening of the yield curve. This divergence can be largely attributed to weaker demand from banks and insurance companies as credit growth is picking up. While central government borrowing has been broadly in line with expectations, higher supply of longer-dated SDLs has contributed to a wider term spread between short- and long-term yields. Despite rate cuts, we had advised avoiding duration exposure as bond yields were already factoring in a more dovish RBI stance.
Yield curve has become steep
Source: Bloomberg, Sanctum Wealth
Looking ahead, the H2 borrowing calendar indicates lower issuance for 15-year and longer maturities, and there is growing expectation of additional Open Market Operations (OMO) purchases by the RBI. These factors are likely to support better performance for long-term bonds in the near term.
That said, we view this as a tactical opportunity only. Most retail investors may find it challenging to fully execute such trades. Therefore, we recommend actively managed debt funds like corporate bond funds to capture these short-term gains effectively.
Gold and Silver Outlook
Gold and silver experienced some pullback following several months of strong rallies. Nevertheless, we believe the long-term fundamentals for both metals remain intact. Key drivers for gold over the medium to long term include concerns of stagflation in the U.S., diversification away from U.S. assets such as Treasuries, geopolitical uncertainty, and sustained demand from global central banks. Additionally, gold ETF inflows have remained strong. Consequently, we continue to maintain an overweight stance on gold, although we had trimmed some exposure in early October.
In contrast, we significantly reduced our exposure to silver during the recent surge in India. Strong investor demand, coupled with a limited physical supply, had pushed silver ETF prices in India to nearly a 10% premium over their NAV, presenting an opportunity to book profits. Currently, we maintain approximately 1.5% exposure to silver across most of our model portfolios compared to about 4% earlier.
Gold and Silver saw some pullback recently
Source: Bloomberg, Sanctum Wealth
