India Monthly Jul2026

This month’s commentary moves between two time horizons. The near term has been encouraging: a strong quarter for earnings and domestic activity, and a welcome rotation back into Indian equities as global capital reconsidered its concentration in AI hardware. But our focus is squarely on the medium term, where the tougher questions are: whether earnings hold once base effects fade, how IT services disruption spills into urban consumption, and whether India’s balance of payments can absorb a less favorable capital flow environment. Given this backdrop, we explain our portfolio positioning and tilt toward strong execution, domestic demand, and structural export share gainers. Enjoy!

Market Review The MSCI India Index returned 1.78% (in USD terms1) in July, driven by a return of foreign buying alongside resilient domestic demand. By sector, IT was the standout by a wide margin, followed by Real Estate and Consumer Discretionary, while Industrials and Utilities were the principal laggards. Foreign portfolio investors (FPIs) turned net buyers of Indian equities for the first time since February, purchasing approximately USD 2.1 billion in July and snapping a four-month selling streak.2 Even so, FPIs remained net sellers for the calendar year to date, with cumulative 2026 outflows of roughly USD 27 billion.3 The defining development of the month was a sharp reversal in the year’s dominant market narrative. A global selloff in AI and semiconductor stocks prompted a rotation of capital toward Indian software services firms, businesses with little direct exposure to AI hardware. Indian IT, the weakest-performing sector for much of 2026, consequently posted its strongest monthly performance in roughly six years. The move was reinforced by a resilient June-quarter (Q1 FY27) earnings season, with steady deal wins and margins across the larger IT names, and by the US Federal Reserve’s decision to hold rates at its late-July meeting. Working in the opposite direction, a renewed escalation in the US-Iran conflict pushed Brent

1 Note: All return figures are in USD terms unless stated otherwise 2 Source: NSDL, August 2026 3 Source: Ibid.

crude more than 20% higher over the month, reversing much of June’s decline and keeping energy costs and inflation firmly in focus.4 On the macro front, headline consumer price index (CPI) inflation accelerated to 4.38% y/y in June, up from 3.93% in May, the highest reading since December 2024 and above the 4% midpoint of the Reserve Bank of India’s target band, as the earlier energy shock fed through to fuel and firmer food prices. 5 Business activity cooled in July, with the manufacturing PMI easing to 53.5 (vs 54.2 in June), while the services PMI fell more sharply to 53.3 from 57.4, its softest reading since early 2022, on slower domestic demand and stronger competition. 6 Consumption held firm, with gross Goods and Services Tax (GST) collections rising 15.4% y/y to INR 2.11 trillion (~USD 22 billion), the fastest pace of growth in 14 months.7 On the trade front, the India-UK Comprehensive Economic and Trade Agreement (CETA) took effect on July 15, eliminating tariffs on approximately 99% of Indian exports to the United Kingdom.8

Portfolio Commentary & Outlook A Lesson in Volatility The focus for this month centered on the wave of global tech earnings and on what the market’s violent swings continue to teach us about how to be positioned. The pattern of the first half of the year was, in a word, indiscriminate: technology was bid up while almost everything else was sold, with little regard for the underlying businesses. India sat squarely on the wrong side of that trade, one of the weakest markets in the region even as its domestic fundamentals held firm. What has changed over recent weeks is that the market has begun to recognize a distinction we have drawn for some time, namely that the larger prize may lie less with the companies building the AI than with the companies using it to strengthen their own franchises. July offered the first evidence of that shift reaching India, as a global selloff in AI and semiconductor stocks sent capital hunting for alternatives and Indian software services, the year’s…