July 2025 – How sectors fared on returns, risk, and valuations?

6 Aug 2025 , 09:40 AM

STOCK MARKET BIG PICTURE FOR JULY 2025

How did the Indian stock markets perform in July 2025, in terms of generic, sectoral, and thematic indices? Here is a quick dekko.

• Let us start with generic indices for July 2025. The 1-month returns were negative across the board for generic indices. The Nifty closed July 2025 with losses of -2.77%. Nifty Midcap-100 fell -3.82%; while the Small Cap 100 fell -5.71% in the month. Clearly, the alpha hunting of June had given way to extra caution in smaller-sized stocks.
• What about thematic indices in July 2025? Thematic indices, across the board, saw a sharp correction in July. Among the worst performers; Defence fell -12.32%, Capital Markets fell -8.12%, and Railway PSUs fell -8.10%. Among the occasional gainers in thematic indices were the Internet Index and the REIT/INVIT index.
• Let us turn to strategy indices in July 2025? All major strategy indices were down, with the deepest cuts in Momentum and High Beta strategies in July 2025. Strategies that held up in tough market conditions were Growth, Quality, and low volatility.

Let us turn specifically to the sectoral indices and how they ranked in terms of returns, risk, and valuations.

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on key sectors with ranking on 1-year returns.

Sectoral Index	1-Year Returns	3-Year Returns	5-Year Returns
Nifty Financial Services	14.95	16.28	20.94
Nifty – Non-Banks	14.49	21.81	22.51
Nifty Bank	9.42	15.24	21.77
Nifty Healthcare Index	9.00	23.81	18.85
Nifty Private Bank	6.00	13.26	18.60
Nifty Pharma	5.45	22.26	16.22
Nifty Chemicals	4.49	11.12	26.10
Nifty Metal	-2.25	19.84	35.96
Nifty Consumer Durables	-3.43	14.52	23.07
Nifty PSU Bank	-6.77	35.95	38.46
Nifty FMCG	-8.34	11.38	14.77
Nifty Auto	-10.59	24.49	27.75
Nifty IT	-11.63	8.75	16.61
Nifty Oil & Gas	-14.04	13.91	18.95
Nifty Realty	-16.34	26.95	35.76
Nifty Media	-23.81	-7.31	5.44

Data Source: NSE Indices

There are interesting takeaways from 1 year returns.

• For the fifth month in a row, BFSI led the returns narrative, with BFSI constituting 4 out of the 5 best performing banks. Nifty Financial Services Index led with 15.0% returns in last one year; followed by Nifty Non-Banks at 14.5%. The only other name in the top-5 was the Healthcare sector 9.00%. A total of 9 out of 16 sectors gave negative returns; with the worst being Media -23.8%, Realty -16.3%, Oil & Gas 14.1% IT at -11.6% and Autos -10.6%. While banks carry some risk due to narrowing NIMs, they have emerged as veritable proxies for Indian consumer spending and demand.
• Out of the 16 sectors, 7 sectors gave positive returns in last 1 year, while 9 gave negative returns. The 15 sectors gave average returns of -2.09% in last 1 year, 17.0% CAGR over 3 years, and 22.61% CAGR over 5 years. The 5-year returns are skewed due to the COVID base. Financials have outperformed consistently; month after month.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Here is a look at the risk perspective.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty Realty	29.30	1.49	0.69	0.47
Nifty Media	26.25	1.00	0.51	0.26
Nifty PSU Bank	24.26	1.13	0.63	0.40
Nifty Metal	24.24	1.34	0.74	0.55
Nifty IT	21.68	1.05	0.65	0.43
Nifty – Non-Banks	20.57	1.23	0.81	0.65
Nifty Oil & Gas	19.89	1.16	0.78	0.61
Nifty Auto	19.72	1.20	0.82	0.67
Nifty Consumer Durables	18.67	0.96	0.69	0.48
Nifty Chemicals	18.66	0.90	0.65	0.42
Nifty Pharma	16.55	0.67	0.55	0.30
Nifty Healthcare Index	15.84	0.70	0.60	0.36
Nifty Financial Services	15.45	1.00	0.87	0.76
Nifty Private Bank	15.16	0.94	0.83	0.69
Nifty Bank	14.76	0.94	0.86	0.74
Nifty FMCG	13.96	0.59	0.57	0.32

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation) starting with the most volatile sectors to the least volatile sectors.

• In terms of standard deviation of returns; Realty, PSU Banks, and Metals rank on top. There seems to be lack of sync with returns and risk, underling that there is too much risk per unit of returns. Over 5-years, higher volatility in these sectors was offset by higher returns. Healthcare and financial services gave top class returns amidst volatility.
• The 15 sectors had average volatility of 19.7% and average beta of 1.02, which approximately reflects Nifty. A total of 7 of the 16 sectors were aggressive with beta of more than 1. FMCG and Healthcare are the best portfolio diversification bets, due to low correlation with Nifty; and low return explanation factor.

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Finally, we look at sectoral valuations ranked on P/E ratios as of July  2025.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	69.36	14.66	0.27
Nifty Realty	49.06	5.63	0.25
Nifty FMCG	41.43	10.23	2.02
Nifty Healthcare Index	37.47	6.15	0.60
Nifty Pharma	31.61	5.36	0.74
Nifty IT	28.81	7.67	2.62
Nifty Non-Banks	25.37	4.01	0.78
Nifty Auto	24.91	4.71	1.06
Nifty Metal	19.37	2.67	2.09
Nifty Private Bank	18.06	2.52	0.46
Nifty Financial Services	18.00	3.08	0.87
Nifty Bank	15.19	2.36	0.94
Nifty Oil & Gas	14.05	1.75	2.66
Nifty PSU Bank	7.31	1.19	2.53
Nifty Media	N.A.	2.07	0.81

Data Source: NSE Indices

Here are key takeaways from the three valuation parameters.

• Consumer durables, Realty, FMCG, and Healthcare are still richest in valuations. Post tariff uncertainty; India consumer spending proxies like FMCG, consumer durables and financials attracted lot of interest. The volatility has made many sectors attractive in dividend yield terms. For instance, IT at 3.08%, PSU Banks at 2.75%, oil & gas at 2.53%, Metals at 2.09%, and FMCG at 1.98% stand out as Dividend Yield picks.
• The average P/E of all sectors stands at 27.06X, higher on MOM basis. The average dividend yield looks relatively attractive at 1.30%.

Sectoral returns witnessed pressure in July 2025, although there are still pockets of steep valuations, as well as pockets of reasonable valuations in the market.