Gold, stocks and FPIs: What the market crystal ball foretells for the next three months

Turbulence over Trump tariffs and the terror strike in Kashmir have darkened the mood for Indian investors buffeted by months of volatility, leaving them scrambling for answers: Does the road get rockier in the next three months? Are there any signs of comfort at all? What happens to initial public offerings (IPOs) after last year’s frenzy? And will gold outperform equities again this year, after 2024?

To gauge the market’s pulse, we surveyed 30 investment professionals—analysts, economists, research heads, and fund managers—between 22 and 30 April. Their verdict: There is no escape from volatility, but in a bleak global setting, India might emerge as a bright spot.

This is the third in a new Mint series of quarterly market surveys, the first of which was held ahead of Diwali in October 2024 and the second in February after the Union Budget.

Most experts (77%) think that Indian investors should brace for moderate to moderately high levels of volatility in the next three months. However, 20% anticipate uncertainty will be high going forward.

Ajit Mishra, senior vice-president of research at Religare Broking noted that President Trump's “policy flip-flops", along with unpredictable reactions from other countries, are likely to inject a fresh wave of uncertainty as the 90-day tariff reprieve ends on 2 July.

Even though India is not in tariff crossfire between the US and China, it is not immune to the secondary effects that are likely to rise from broader global disruptions. Hence, most experts expect increased fluctuations and increased short-term capital movements in the near term.

Also read | India won the emerging market race again in FY25. Will it become a safe haven too?

However, Jay Kothari, lead equity strategist at DSP Mutual Fund feels that historically, bouts of volatility have often offered the most opportune moments for long-term investments as prices tend to be lucrative during uncertain times.

On the other hand, Prasanna Pathak, managing partner at The Wealth Company, believes the tariff threat might be moderate as the market generally does not “discount the same news twice”. “Markets were relatively calmer during the second wave of covid, even though it was more fatal than the first wave,” he argued.

Still, Radhika Rao, executive director and senior economist at DBS Bank thinks that a tariff re-imposition might impact the domestic electronics, textiles, pharmaceuticals, and gems & jewellery sectors first. One should also avoid expensive midcap IT stocks, non-ferrous metals and commodity chemicals, given the concerns of dumping from China, according to JM Financial Services.

More importantly, Rao believes a diversification strategy from the US dollar and assets into select emerging markets like India may offer better insulation from global volatility, driving inflows into the domestic market.

To be sure, Indian markets have been reeling under relentless foreign portfolio (FPI) outflows, exorbitant valuations and poor corporate earnings since the second half of 2024, even before Trump's tariffs rattled world markets.

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The majority of the respondents (57%) think India’s unmatched scale and policy stability relative to smaller emerging market peers will offer respite to investors globally. Even though a few believe that Indian equities’ high valuations may limit FPI inflows against cheaper rivals like Brazil or Vietnam, 20% of respondents think overseas flows may remain selective, focusing on select sectors like banking, fast-moving consumer goods and telecom.

Devarsh Vakhil, head of prime research at HDFC Securities is particularly optimistic about a turnaround in FPI flows. He pointed out that overseas investors have purchased more than ₹32,000 crore of Indian equities, while domestic institutional investors (DIIs) have sold approximately ₹5,300 crore over the past two weeks.

Vakhil thinks Indian equities are “at the back end of the FPI selling cycle”, where sticky long-term FPI money remains invested in India, with no change in sentiment. “However, the more tactical, short-term capital may keep rotating in and out of Indian markets,” he added.

Going forward, cheaper valuations of large-cap stocks, where most of the FPI money is usually parked, might entice foreign capital back, noted experts. Around 63% of respondents think large-cap stocks have seen healthy corrections already and offer lucrative entry points across the board.

Also read | FPIs bet on limited Nifty movement amid simmering India-Pakistan tensions

However, the remaining 37% feel that currently, only a select few large cap pockets are looking cheap, while the broader universe is likely to face further corrections. Manish Jain, head of fund management at Centrum Broking finds banking, financial services and insurance (BFSI), automobiles, healthcare, and consumption discretionary sectors attractively priced at the moment.

On mid- and small-cap stocks, the majority (63%), however, hold a cautious view. They think concerns have somewhat reduced after the Nifty Midcap 100 fell 23% from its September 2024 peak, and the Nifty Smallcap 100 has fallen around 25% from its December 2024 highs. These segments are looking moderately attractive right now, experts feel.

“Select (mid- and small-cap) stocks from the capital goods, housing, and electronics manufacturing sectors, supported by robust government policies now offer better risk reward opportunities,” noted Gaurav Garg, research analyst at Lemonn markets desk.

But correcting valuations might not be enough. Experts noted that India Inc would still need at least two quarters for its lacklustre earnings to catch up to valuations to drive a broad-based rally in the market. However, a resounding 80% of respondents believe that the March quarter will be in line with expectations. They expect earnings downgrades to slow down, with no material upgrades on the cards.

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As sentiments remain fragile, mainboard IPOs have also remained largely absent in 2025, fizzling out after last year’s frenzy. There were none in March and only one hit in late April, raising doubts about the market’s animal spirits.

But thankfully, 53% of experts foresee a cautious recovery in IPOs. However, they think only high-quality or well-known companies will dare to list in the near term. Another 40% think sentiment will stay muted for at least another quarter due to global uncertainties and valuation concerns.

While volatility keeps the secondary market on its toes and chokes the supply of fresh scripts, gold has been claiming the crown, outclassing equities and debt so far this year. Gold returned almost 26% in 2024, outperforming riskier assets globally, and this year, it is up nearly 31% due to the recent rout in US treasury and currency markets.

Hence, 67% of experts feel gold might outperform Indian equities and debt for the rest of 2025. But if there is a resolution to the trade conflicts, they also expect healthy corrections in the precious metal.

“The best way to play gold from hereon is through gold-related equities for those who have missed the rally in the physical commodity,” said Kothari from DSP Mutual Fund.

And read | Beyond the tariff truce: Where can investors find lasting protection?