Nifty 50 rises 3% in March so far after 5 straight months of losses—can the rally sustain?

After five consecutive months of losses, Indian stock market benchmark Nifty 50 showed some recovery in March despite turbulence on Wall Street, driven by concerns over the trade war and recession risks in the US economy.

On Tuesday, March 18, the Nifty 50 jumped over 1 per cent to 22,781 in intraday trade. At this price, the index has gained nearly 3 per cent in the current month.

Some valuation comfort, an improving outlook for India's economic growth, a significant decline in inflation, and expectations of further rate cuts from the Reserve Bank of India have been the key factors underpinning the domestic stock market.

However, the index is still 13 per cent down from its peak of 26,277, reached on September 27 last year.

Moreover, risks stemming from US President Donald Trump's tariff policies, a fresh escalation in Middle East tensions, and relentless foreign capital outflows persist. At this juncture, the crucial question is—can the gains in the domestic market be sustained?

Nifty 50: Is the index poised for a healthy gain?

While the long-term outlook for the Indian stock market remains positive, experts warn that it is too early to say the worst is over. A trend reversal could occur after a stable of slightly improved Q4FY25 earnings and if upcoming macro data support the conviction that the Indian economy is progressing at a steady pace.

"The primary concern that continues to create uncertainty in the macroeconomic landscape is the ongoing tariff issues, which are likely to induce volatility in the market," said Shrikant Chouhan, the head of equity research at Kotak Securities.

The global trade war and its economic fallout are serious concerns for stock markets globally.

"The Nifty's recent recovery after five consecutive months of decline is encouraging. However, we believe this rebound may be short-lived as market sentiment remains fragile due to geopolitical tensions, trade war and the rupee's weakness," said Vinit Bolinjkar, the head of research at Ventura.

Bolinjkar underscored that escalating tensions in the Middle East and Eastern Europe could drive volatility in commodity prices, impacting India's trade deficit and inflation. This may ultimately lead to downward revisions in corporate earnings forecasts.

On the other hand, the ongoing tariff disputes threaten global trade dynamics. Bolinjkar said this could further pressure corporate earnings, adding to the risk of earnings downgrades.

Sneha Poddar, VP of research and wealth management at Motilal Oswal Financial Services, is optimistic about economic growth. However, she underscored that the ongoing US trade war could keep the market volatile.

"Although there could be some risk to FY26E earnings in the current backdrop, we believe that growth would still be in double digits. The Indian fiscal and monetary policies have become more accommodating, which, in our view, will boost the demand impulse and growth over the coming quarters," said Poddar.

"Our analysis of Nifty 50’s correction phases in the past 10 years shows that the Indian equity market could be in the latter stages of correction. However, a potential slowdown in major global economies due to the ongoing US trade war can affect investor sentiment and lead to volatility in global markets, including India," Poddar said.

What should Indian investors do?

Despite prevailing uncertainty and expectations of heightened volatility in the near term, experts suggest increasing equity exposure at this stage, as the long-term outlook for the Indian stock market remains bright.

"From a medium to long-term perspective, investors are encouraged to consider investing at the current levels and increase their positions during market dips. However, caution is advised when investing," said Chouhan of Kotak Securities.

Chouhan suggests avoiding stocks with a substantial portion of their business tied to exports and focusing on sectors that rely on domestic consumption and have a larger market presence.

Besides, he suggests avoiding mid- and small-cap stocks until the market stabilises.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.