India's Inflation Relief Fuels Tech and Manufacturing Outperformance

The June 2025 inflation data for India marks a pivotal shift in the economy's trajectory, with both the Wholesale Price Index (WPI) and Consumer Price Index (CPI) showing significant declines. WPI inflation turned negative for the first time in 20 months (-0.13% YoY), while CPI dropped to a six-year low of 2.1%, underscoring a dramatic easing of price pressures. This environment is creating tailwinds for corporate margins, particularly in the tech and manufacturing sectors, as input costs for raw materials, energy, and labor stabilize. Coupled with robust earnings from Q1 2026 releases, this signals a compelling opportunity for investors to allocate to Indian equities with exposure to these growth drivers.

The Inflation Tailwind: How Lower Costs Benefit Sectors

The drop in inflation is driven by sharp declines in food and fuel prices, two of the largest components of both WPI and CPI. Food articles saw a 3.75% deflation in June 2025, with vegetables (-22.65%) and pulses (-14.09%) leading the decline. Fuel prices also retreated, with mineral oils (-5.12%) and electricity (-9.10%) contributing to WPI's deflationary shift. This reduction in input costs is a boon for manufacturers, who face fewer pressures to raise prices or absorb margin hits.

For tech companies, lower energy costs and stable semiconductor prices—critical inputs—allow for higher profit margins. Meanwhile, manufacturers of goods like automobiles and industrial equipment benefit from reduced raw material expenses, such as steel (-3.14% YoY) and copper. This dynamic is already reflected in corporate results.

Q1 Earnings: Tech and Manufacturing Lead the Charge

Recent earnings reports from key players highlight the resilience of India's tech and manufacturing sectors:

1. Tata Technologies: Q1 FY2026 revenue rose 15% YoY to ₹5,500 crore, driven by robust demand in automotive and aerospace sectors. The company reported a 22% jump in margins, citing lower input costs for metals and energy.
2. HCL Tech: IT services revenue grew 12% YoY to ₹12,400 crore, with cloud and digital transformation projects fueling demand. The firm noted no pricing pressure from clients, reflecting the broader moderation in inflation.
3. Tejas Networks: Telecom infrastructure orders surged 18% YoY, as 5G rollouts and enterprise digital upgrades boosted demand. Gross margins expanded to 40%, aided by stable component prices.

These results suggest that companies in tech and manufacturing are not only weathering economic slowdowns but also capitalizing on cost efficiencies to fuel growth.

Why Tech and Manufacturing Are Key Now

The combination of easing inflation and strong sectoral demand creates a “sweet spot” for investment in Indian equities:

• Lower Input Costs = Higher Margins: Companies in both sectors are benefiting from reduced raw material and energy expenses, allowing them to reinvest in R&D or expand operations without margin compression.
• Structural Growth Drivers: India's tech sector is a global leader in IT services and semiconductor design, while manufacturing is bolstered by government initiatives like PLI (Production Linked Incentive) schemes. The automotive and aerospace sectors, for example, are expected to grow at 10–12% CAGR through 2027.
• Global Demand Resilience: Tech companies like HCL Tech are seeing steady demand from U.S. and European clients, while manufacturers benefit from India's position as a low-cost, high-quality production hub.

Investment Strategy: Target BSE500 Tech and Manufacturing Plays

Investors should prioritize BSE500 constituents with exposure to these sectors, focusing on companies with strong balance sheets and pricing power.

1. Tech Sector:
2. HCL Tech (HCLTECH): Leverage its dominance in cloud and AI services.
3. Infosys (INFY): Benefits from global digital transformation spending.

4. Wipro (WIPRO): Strong in cybersecurity and AI-driven enterprise solutions.

5. Manufacturing Sector:

6. Tata Technologies (TATATECH): Exposed to automotive and aerospace growth.
7. JSW Steel (JSWSTEEL): Benefits from lower coking coal prices and infrastructure spending.
8. Maruti Suzuki (MARUTI): Leads in cost-efficient automotive manufacturing.

For broader exposure, consider ETFs like the NIFTY IT ETF or NIFTY AUTOMOTIVE ETF, which track sector-specific indices.

Risks to Monitor

While the outlook is positive, investors should watch for:
- Global Trade Tensions: U.S. tariffs on Indian auto exports (pending a resolution by August 2025) could disrupt manufacturing margins.
- Monsoon Performance: A delayed monsoon could reignite food inflation, though current forecasts suggest a favorable season.
- Policy Shifts: The RBI's neutral stance may turn hawkish if core inflation (4.4% in June) persists, though the June CPI data leaves room for one more rate cut by mid-2026.

Conclusion: A Compelling Entry Point

The confluence of moderating inflation, strong sectoral earnings, and India's structural growth story positions tech and manufacturing as top investment themes. Companies in these sectors are well-placed to capitalize on cost efficiencies and global demand, making BSE500 constituents a compelling buy. Investors should move swiftly to allocate to these areas before the next earnings season begins in October 2025.

This analysis is based on publicly available data and does not constitute personalized financial advice. Always conduct further research or consult a financial advisor before making investment decisions.