Indian stock market rebounds in March: Is the worst over or will global headwinds play spoilsport?

Stock market today: Indian markets have staged a remarkable recovery in March, rebounding from a prolonged sell-off that began in October, which had made them one of the worst-performing markets globally. Both Nifty 50 and Sensex have gained over 7% in March so far, marking their best monthly performance since June 2024.

Mid- and small-cap stocks, which were among the biggest casualties of the recent sell-off, have also recovered sharply. The Nifty Midcap 100 ended last week with a 7.74% gain and is up 10% in March so far, while the Nifty Smallcap 100 index surged 8.64% last week, taking its monthly gains to 12%.

The recent pullback in local equities has been largely driven by a shift in stance among overseas investors. While they remained net sellers, the pace of selling slowed compared to previous months. FPIs bought Indian stocks in two of the last three sessions. So far, they have been net buyers in only five out of the 57 trading sessions this year but have sold shares worth nearly $29 billion since the indices peaked in late September.

Last week, the Federal Reserve maintained its projection for two rate cuts in 2025. Lower U.S. interest rates make emerging markets, such as India, more attractive for foreign investors.

Additionally, the Indian rupee’s decline to a two-year low below 86, coupled with favourable domestic economic data—such as inflation hitting a seven-month low at 3.61%, a 22-month low trade deficit, and rising tax collections in FY25—helped boost market sentiment.

Another key concern that kept domestic equities under pressure for an extended period was lofty valuations. Analysts believe valuations have now somewhat aligned with fundamentals, particularly in large-cap stocks, thanks to the sharp correction—the biggest since the COVID-19 pandemic.

The steep market decline has also triggered bargain hunting, as stocks that previously soared relentlessly are now available at more attractive prices, encouraging investors to start accumulating them at more reasonable levels.

After losing billions of rupees in the recent market rout, retail investors are finally seeing their portfolios turn green in the March rebound. However, the sustainability of this uptrend will likely depend on both domestic and global factors, including upcoming corporate earnings, potential reciprocal tariffs from the Donald Trump administration, the RBI’s policy meeting, and foreign investor flows.

Expert Take

Amid this market rebound, Mohit Khanna, CFP, Fund Manager at Purnartha PMS, shares his insights on the market outlook, key investment strategies, potential risks and the factors driving the current rally.

How sustainable is the stock market trend?

A larger part of the recovery can be attributed to short covering. As of now, we are looking at the recovery as a relief rally post a 5-month-long one-sided correction. The sustainability of this relief rally will only be determined by improving fundamentals and corporate earnings. I think markets would like to access the upcoming 4QFY25 earnings and Trump’s tariffs impact before making any decisive move.

Trump’s upcoming reciprocal tariffs have the potential to redraw global supply chains for various industries. This has kept the corporates and governments across the world in the ‘wait-and-watch’ mode. Strategic responses to Trump’s tariffs would determine the earnings growth trajectory for the next few years. Markets are seeking that clarity, and until this uncertainty is settled, we will continue to see volatility.

What's behind FPIs' U-turn?

I would not read too much into monthly FPI data, as it could reverse the following month. The relative underperformance of the Indian markets, reasonably large-cap valuations, and expectations of an economic slowdown in the US could be the primary reasons for FPI buying in March.

What to expect from India Inc earnings in Q4?

For Indian markets, 4QFY25 should be relatively weak on a YoY basis but should deliver QoQ growth. Post that we have a favorable base for FY26 that would optically help on growth calculations. As pointed out above, the future corporate earnings and valuations (sentiments) would be a function of Trump’s decision and strategic responses to the tariff decision.

Where to invest in this market?

I believe that the ‘Quality’ factor is more important this year than simply choosing the ‘Size’ factor. Bottom-up stock selection and confidence in earnings growth delivery are key parameters to build a portfolio for the next 2-3 years, in my view.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.