Domestic equity markets witness steep decline in August: ICRA Analytics

The domestic equity market saw a sharp decline after the U.S. President unexpectedly doubled tariffs on Indian exports to 50%, threatening India’s manufacturing ambitions and potentially slowing economic growth.

The losses deepened amid renewed Russia-Ukraine tensions, which dampened market sentiment. However, the downside was limited by expectations that the Indian Prime Minister’s Goods and Services Tax (GST) reforms could boost household consumption, ease inflationary pressures, and pave the way for further rate cuts by the Reserve Bank of India (RBI), according to a press release by ICRA Analytics.

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Bond yields climbed as the RBI kept rates unchanged in its Aug 2025 monetary policy meeting, opting for a wait-and-watch approach to assess the impact of earlier rate cuts on the economy, contrary to market expectations of a dovish tone or further easing.

According to ICRA Analytics, the losses were extended after the Indian Prime Minister announced sweeping changes to the Goods and Services Tax (GST) regime, reigniting fiscal concerns and fears of increased debt supply. However, losses were restricted after a major global credit rating agency upgraded India’s long-term sovereign credit rating from 'BBB-' to 'BBB'.

In August, all categories across equity mutual funds gave positive category average returns over 3-year, 5-year and 10-year periods. However, over 1 year, all the categories posted negative average returns. On average, all categories lost 4.84%.

In a time frame of five years, equity funds delivered an average return of 22.14% followed by 14.37% in the last 10 years.

The smallcap fund gave the maximum category average return over the 5-year and 10-year period. Over a 5-year period, small-cap funds gave category average returns of 28.27%. Sectoral/thematic funds gave negative category average returns of around 3.63% over a 1-year period.

On the debt front, all categories across debt mutual funds gave positive returns across 6-month, 1-year, 3-year, 5-year and 10-year periods. In the last one year, debt funds have given an average return of 6.99%, followed by 7.09% in the last three years.

In the last five years, the debt funds gave an average return of 5.95% and in the last 10 years, the average return was 6.68%.

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Credit risk funds gave maximum average returns over 6-month, 1-year, 3-year and 5-year periods. Over a 6-month period, credit risk funds gave average returns (annualised) of 11.86%.

Liquid Fund gave the maximum average return over a 1-month period (5.49%). The Gilt Fund, with a 10-year constant duration, gave the maximum average return over a 10-year period (7.86%).

The release also highlighted that, in the last year, other schemes, which include passive funds such as ETFs and index funds, yielded the highest return of around 15.19%. In the same time period, hybrid funds gave a 2.75% average return, and solution-oriented funds were in the red zone as these funds lost 1.09% on average.