Indian Stock Market Recovery: A March Surge

The Indian stock market has shown impressive resilience this March, bouncing back from a prolonged downturn that began last October. During that period, the market was among the worst performers globally. This month, both Nifty 50 and Sensex have witnessed gains exceeding 7%, marking their most robust monthly performance since June 2024. Notably, mid- and small-cap stocks, which suffered significantly during the sell-off, are also experiencing a strong recovery.

Mid-Cap and Small-Cap Stocks Rebound

• The Nifty Midcap 100 index concluded last week with a 7.74% increase, bringing its total gains for March to 10%.
• The Nifty Smallcap 100 index saw an impressive rise of 8.64% last week, culminating in a monthly boost of 12%.

This resurgence in mid- and small-cap stocks is encouraging for investors who faced considerable losses in recent months.

Investor Sentiment Shifts

The rebound in local equities is primarily attributed to a change in sentiment among foreign portfolio investors (FPIs). Although they continued to sell off shares, the pace of their selling has slowed compared to previous months. In fact, FPIs have been net buyers in two of the last three trading sessions. Despite this, they have sold off nearly $29 billion worth of shares year-to-date following a peak in late September.

A recent announcement from the Federal Reserve about maintaining projections for two interest rate cuts in 2025 has also contributed to a favorable environment for emerging markets like India. Lower U.S. interest rates enhance the attractiveness of these markets for foreign investment.

Positive Economic Indicators

Several domestic economic factors have bolstered market sentiment:

• The Indian rupee has dropped to a two-year low below 86.
• Inflation has reached a seven-month low at 3.61%.
• A 22-month low trade deficit has been recorded.
• Rising tax collections in FY25 have further fueled optimism.

Valuations Aligning with Fundamentals

After a significant correction—the largest since the COVID-19 pandemic—analysts believe that stock valuations are now more in line with fundamentals, particularly for large-cap stocks. This adjustment has led to increased interest in bargain hunting, as many previously high-flying stocks are now available at more appealing prices.

Retail Investors Regain Confidence

As the market recovers, retail investors are witnessing a turnaround in their portfolios after substantial losses during the downturn. However, the sustainability of this rebound will hinge on various factors, both domestically and internationally. Key considerations include upcoming corporate earnings, potential tariffs from the Trump administration, decisions from the Reserve Bank of India (RBI), and the flow of foreign investments.

Expert Insights on Market Trends

According to Mohit Khanna, CFP and Fund Manager at Purnartha PMS, the recent uptick in the market can be seen as a relief rally following a five-month one-sided correction. He emphasizes that the durability of this rally will depend on improving fundamentals and corporate earnings.

• Upcoming earnings for Q4FY25 are anticipated to be weak year-over-year, but there is potential for quarter-over-quarter growth.
• The market is closely monitoring any strategic responses to Trump’s tariffs, which could significantly affect global supply chains and, consequently, corporate earnings.

Investment Strategies for the Future

In today’s market landscape, Khanna advises prioritizing quality over size in investment selections. He believes that a bottom-up approach, focusing on companies with strong earnings growth potential, will be essential for building a robust portfolio over the next few years.

The road ahead for the Indian stock market appears to be laden with opportunities, but investors must remain vigilant, ready to adapt to the evolving economic landscape.