Debt market forecast for September 2025

The recent imposition of a 50% tariff on Indian goods by the United States, alongside escalating geopolitical uncertainties, has instilled a sense of caution in the debt markets, with many adopting a “wait and watch” approach. To gain insight into what the upcoming month of September holds, we sought the perspectives of industry experts Dhawal Dalal from Edelweiss Mutual Fund, Dwijendra Srivastava representing Sundaram Mutual Fund, and Prateek Shroff of LIC Mutual Fund.

Reflecting on the events that unfolded in August, the experts identified the US tariff announcement as a pivotal factor that influenced the Indian debt market. Following Prime Minister Narendra Modi’s announcement regarding GST rate changes on August 15, bond yields experienced a hardening trend, as observed by Dhawal Dalal. Dwijendra Srivastava emphasized that the tariffs introduced a sense of unease and unpredictability in the market, while the behavior of the rupee diverged from that of other emerging market currencies. Additionally, the Reserve Bank of India’s (RBI) vigilant stance, signaling concerns about inflation, contributed to the overall market sentiment. Prateek highlighted the combined impact of the Federal Reserve’s hawkish stance and the imposition of tariffs, which led to significant pressure on the Indian currency and subsequent foreign portfolio investments outflows from both debt and equity markets.

Looking ahead into September, Dalal anticipates a more transparent outlook from the government and the RBI. He foresees a deflationary influence on the global economy due to tariffs and expects further rate cuts by the RBI to support growth, given the favorable inflation projections for fiscal year 2026. However, he pointed out that corporate earnings indicate suboptimal economic activity, suggesting that yields may remain within a narrow range in the near future. Srivastava noted that India’s modest share of global exports limits the GDP impact to 40-60 basis points, which the government could potentially offset. With benign inflation projections, he suggested that a controlled currency depreciation could enhance India’s competitive edge in international trade.

Shroff expressed a cautious “wait and watch” sentiment as the yield spread widened between different bonds, signaling market apprehension. He highlighted the government’s interventions to support sectors impacted by tariffs and anticipated potential relief from the upcoming GST council meeting, potentially stimulating domestic consumption. Amidst ongoing fiscal prudence, Shroff does not foresee additional government borrowing, anticipating a period of continued vigilance until further clarity emerges.

In terms of recommendations, Dalal suggests longer-term funds with greater exposure to 10-15 year G-Secs due to a steepening yield curve, along with attractive opportunities in 30-40 year bonds driven by demand-supply dynamics. Srivastava advises mid-duration securities for risk-averse investors, predicting stable interest rates in the near term, while suggesting corporate bond funds and banking & PSU funds for long-term investors.

As the debt market navigates through uncertainties and changing dynamics, the insight provided by these experts sheds light on the nuanced considerations and potential strategies that investors and market participants can undertake in the month ahead.