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India’s domestic equity markets gained traction in recent weeks, buoyed by a strong set of macroeconomic indicators and policy reforms, according to a latest report by ICRA Analytics. The country’s GDP grew by 7.8% year-on-year in Q1 FY26, marking the fastest expansion in five quarters, while the Services PMI surged to 62.9 in August 2025—its highest level in over 15 years—signalling robust business activity and sustained demand.Adding to the positive sentiment, the GST Council’s decision to simplify tax slabs—from the existing 5%, 12%, 18%, and 28% structure to a two-rate regime of 5% and 18%, along with a special 40% slab for luxury goods such as premium cars, tobacco, and cigarettes—was widely welcomed by investors and industry alike.Market optimism was also underpinned by the U.S. Federal Reserve’s first rate cut of 2025, a 25 basis points reduction in September, aimed at countering softness in the American labor market. However, gains were tempered by ongoing uncertainties surrounding India–U.S. trade talks and continued foreign institutional investor (FII) outflows from domestic equities.Also Read: Equity Mutual Funds See ₹42,673 Crore Inflows in July as SIPs Drive Long-Term Wealth Creation: ICRA | Republic WorldOn the debt front, bond yields declined as the government projected a smaller revenue loss from GST revisions, easing fiscal worries. Officials’ assurances about adhering to the fiscal deficit target also lent support. Still, the Fed’s cautious tone on future rate decisions limited the upside for bond markets.The report highlighted that all equity mutual fund categories posted positive average returns over the three-, five-, and ten-year periods, although one-year returns remained negative across the board.Small-cap funds outperformed, delivering a 27.59% category average return over five years.Large-cap funds, on the other hand, recorded a 4.92% negative return over the one-year period.Within debt funds, credit risk funds emerged as top performers, offering the highest average returns across the six-month to five-year horizons, with a 10.02% annualised return over six months. Meanwhile, low-duration funds led the one-month category with 18.57% returns, while gilt funds with 10-year constant duration topped the ten-year horizon, delivering 7.76% returns. Overall, all debt fund categories generated positive returns across the one-, three-, five-, and ten-year periods, the report noted.
