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

2 Sep 2025 , 04:18 PM

STOCK MARKET BIG PICTURE FOR AUGUST 2025

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

• Let us start with generic indices for August 2025. The 1-month returns were negative across the board for generic indices. The Nifty closed August 2025 with losses of -1.21%. Nifty Midcap-100 fell -2.83%; while the Small Cap 100 fell -3.94% in the month. Clearly, alpha hunting appears have given way to risk-off investing approach.
• What about thematic indices in August 2025? Thematic indices, across the board, saw a sharp correction in with only the defensive FMCG index giving positive returns. The worst hit sectors in terms of returns were; Chemicals (-4.95%), Realty (-4.41%), Pharma (-4.20%), Oil & Gas (-3.99%), and Banks (-3.91%).
• Let us turn to strategy indices in August 2025? All major strategy indices were down, with the deepest cuts in High Beta, Alpha, and Momentum strategies. Strategies that held up in a tough month were; Quality, Low Volatility, Growth, and Equal Weight.

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	9.24	13.02	18.57
Nifty Ex-Banks	6.22	19.05	21.25
Nifty Bank	5.32	11.65	18.57
Nifty Private Bank	2.00	9.40	15.53
Nifty Chemicals	1.21	7.17	22.74
Nifty Healthcare	-0.49	22.23	18.02
Nifty Metal	-1.81	16.21	32.29
Nifty PSU Bank	-2.65	31.95	35.95
Nifty Auto	-3.74	24.61	27.25
Nifty Pharma	-5.42	20.64	15.35
Nifty Consumer Durables	-6.27	12.45	21.81
Nifty FMCG	-9.17	10.51	15.10
Nifty IT	-15.93	9.56	16.72
Nifty Realty	-17.08	23.82	31.78
Nifty Oil & Gas	-18.94	9.73	17.97
Nifty Media	-22.82	-7.42	1.12

Data Source: NSE Indices

There are interesting takeaways from 1 year returns.

• For the sixth month in a row, BFSI led the returns narrative, with BFSI constituting 4 out of the 5 best performing sectors. Nifty Financial Services Index led with 9.2% returns in last one year; followed by Nifty Ex-Banks at 6.2%. The only non-BFSI name in the top-5 was Chemicals sector at 1.2%. A total of 11 out of 16 sectors gave negative returns; with the worst being Media -22.8%, Oil & Gas -18.9%, Realty 17.1%, IT Sector -15.9% and FMCG -9.2%. Banks have emerged as veritable proxies for Indian consumer spending and domestic demand, despite the risk of narrowing NIMs.
• Out of the 16 sectors, 5 sectors gave positive returns in last 1 year, while 11 gave negative returns. The 15 sectors gave average returns of -5.02% in last 1 year, 14.7% CAGR over 3 years, and 20.6% CAGR over 5 years. The 5-year returns continue to look very flattering, but that is more due to the COVID base.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Risk is the other side of the coin for investors.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty Realty	28.88	1.50	0.69	0.47
Nifty Media	25.35	0.93	0.49	0.24
Nifty PSU Bank	23.85	1.12	0.62	0.38
Nifty Metal	23.64	1.31	0.73	0.54
Nifty IT	21.41	1.02	0.63	0.40
Nifty Ex-Banks	20.22	1.24	0.81	0.65
Nifty Auto	19.58	1.19	0.80	0.65
Nifty Oil & Gas	19.28	1.12	0.77	0.59
Nifty Consumer Durables	18.79	0.98	0.68	0.47
Nifty Chemicals	18.39	0.89	0.64	0.40
Nifty Pharma	17.03	0.71	0.55	0.30
Nifty Healthcare	16.24	0.74	0.60	0.36
Nifty Financial Services	15.18	1.01	0.88	0.77
Nifty Private Bank	15.08	0.96	0.84	0.70
Nifty Bank	14.61	0.95	0.86	0.74
Nifty FMCG	14.11	0.60	0.56	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, indicating there is too much risk per unit of returns. Over 5-years, higher volatility in these sectors was offset by higher returns. Interestingly, banks and financials have become low risk plays.
• The 16 sectors had average volatility of 19.5% and average beta of 1.02, which approximately reflects Nifty. A total of 8 of the 16 sectors were aggressive with beta of more than 1. FMCG and Pharma 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 August 2025.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	69.54	13.60	0.35
Nifty FMCG	42.08	10.67	2.03
Nifty Realty	41.75	4.07	0.32
Nifty Chemicals	40.60	4.04	0.93
Nifty Healthcare	37.22	5.39	0.58
Nifty Pharma	31.63	4.70	0.72
Nifty Auto	25.62	4.49	1.19
Nifty IT	25.41	6.77	3.08
Nifty Ex-Banks	21.98	3.89	0.92
Nifty Metal	17.52	2.41	2.45
Nifty Private Bank	17.48	2.01	0.58
Nifty Financial Services	16.73	2.65	1.05
Nifty Bank	14.61	1.99	1.11
Nifty Oil & Gas	11.44	1.54	2.39
Nifty PSU Bank	6.96	1.09	2.79
Nifty Media	N.A.	1.94	1.39

Data Source: NSE Indices

Here are key takeaways from the three valuation parameters.

• Consumer durables, FMCG, Realty, Chemicals, and Healthcare are richest in valuations, with Chemicals being a recent entrant after a sharp rally. Clearly, India consumer spending proxies like FMCG, consumer durables and financials attracted buying interest. The volatility has made many sectors attractive in dividend yield terms. For instance, IT at 3.08%, PSU Banks at 2.79%, Metals at 2.45%, oil & gas at 2.39%, and FMCG at 2.03% stand out as veritable Dividend Yield picks.
• The average P/E of all sectors stands at 26.3X, lower on MOM basis. The average dividend yield looks relatively attractive at 1.37%.

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