By Research desk
March 2025 Market Performance Recap:
Indian equities witnessed a strong rebound in March 2025, reversing the sharp correction seen in the preceding months. The Nifty 50 climbed 6.31% during the month, recovering part of the 16% decline from its all-time high of 26,216 in September 2024 to the February 2025 low. The broader market outperformed the benchmark, with the Nifty Next 50 gaining 10.55%, Nifty Midcap 100 rising 7.85%, Smallcap index up 9.50%, and the Microcap 250 advancing 6.19%. The recovery was broad-based, driven by a combination of easing global headwinds — including softening bond yields and a weaker dollar — improved risk sentiment, and renewed foreign inflows. Technical factors like oversold conditions and expectations of an earnings revival also aided the bounce-back.
FIIs, who were net sellers in the early part of March, turned aggressive buyers in the latter half, contributing $3.6 billion of net inflows. Overall, FIIs invested $975 million during the month, while DIIs added $4.3 billion, reflecting strong domestic participation. This turnaround in sentiment pushed FII shareholding in Indian equities to 16.8% in March, up from 15.9% in February.
Sectoral performance
March 2025 saw strong sectoral gains, driven by cyclical and government-linked themes. Defence and public sector enterprises led the charts, posting sharp double-digit returns. Energy, commodities, railways, and capital markets also delivered robust performance, supported by increased infrastructure spending and improving macro cues. On the flip side, real estate investment trusts (REITs) were the only notable laggards during the month.
Over the past year, financials, healthcare, and select manufacturing-linked sectors have shown steady performance, while pockets like media, oil & gas, and public sector banks trailed. In terms of risk, sectors such as metals and real estate continued to exhibit high volatility, whereas FMCG, healthcare, and pharma provided relatively stable returns.
Valuations remained elevated in consumption-driven segments like durables and FMCG, while sectors such as oil & gas and telecom appeared more attractively priced. Additionally, segments offering consistent cash flows and healthy dividend yields—like energy and IT—remained in favour with long-term investors. Overall, the sectoral trend reflected a balance between momentum-driven rallies and a selective search for value.
In the following sections, we provide a more comprehensive examination and detailed insights of some major sectors:
Auto:
The auto sector wrapped up Q4FY25 with modest growth across key metrics. OEMs are expected to report YoY revenue, EBITDA, and PAT, respectively. The growth was fuelled by mid-to-high single-digit volume expansion in two-wheelers, low-to-mid single-digit growth in passenger and commercial vehicles, and low-teens growth in tractors. However, EBITDA margins are likely to remain flat YoY, weighed down by higher discounts, promotional costs, and negative operating leverage, despite price hikes taken over the past year.
Sequentially, revenue/EBITDA/PAT are projected to rise with a modest 21 bps improvement in EBITDA margins. Within OEMs, TVS and Hero are expected to see YoY margin expansion of ~77 bps and ~27 bps, respectively, while Bajaj may witness a 10 bps contraction. Maruti’s margin is likely to decline by 44 bps YoY due to higher ad spends, deeper discounts, and a growing CNG mix. Escorts Kubota may see a sequential margin dip owing to consolidation-related impacts, while Ashok Leyland is expected to post a 42 bps YoY margin uptick aided by cost controls and operating leverage.
For auto ancillaries, revenue and EBITDA are expected to rise YoY, supported by higher 2W and tractor volumes and premiumisation in PVs. QoQ, revenue and EBITDA may grow with margins expanding aided by stable commodity costs and operating leverage. YoY PAT may remain flat due to one-offs, though a ~14% sequential improvement is expected.
Segment-wise, Endurance Tech is likely to benefit from stronger 2W production and ABS/alloy wheel ramp-up, while Automotive Axles could see ~3.5% YoY growth driven by MHCV demand. Uno Minda may clock ~16% YoY growth, led by robust 2W volumes and new orders. Sansera Engineering could post a ~5.4% YoY uptick, supported by aerospace and domestic 2W segments.
Input costs largely remained stable, with flat steel and lead prices. Aluminium and copper prices rose ~2% QoQ, while palladium declined 4%. Rhodium rose ~6%, and platinum was steady.
Going forward, tractors are expected to outperform supported by favourable monsoons and rural recovery. 2Ws and CVs may see low-to-mid single-digit growth, while PV sales may moderate due to a high base, barring fresh traction from new SUV launches. Entry-level PV demand may remain tepid.
A significant overhang is the proposed 25% tariff on all auto imports into the US, which includes Indian-made vehicles and components. This move, if implemented, could materially impact export volumes for several Indian OEMs and ancillary suppliers. The uncertainty around this trade action poses a downside risk to FY26 earnings, especially for firms with meaningful US exposure.
Metals:
Indian steel prices saw a sharp 7.7% MoM rise in March 2025, reaching ₹52,000 per tonne, while Chinese steel prices declined by 1.1% MoM to $470 per tonne. On the raw material front, coking coal prices dropped by 2.1% MoM to $139 per tonne — the lowest level since May 2021. In February 2025, India’s steel production declined 6.6% MoM to 12.7 million tonnes, while China’s estimated output dropped by 3.7% to 79 million tonnes. Global steel production was also lower by 4.4% MoM at 145 million tonnes. Although Chinese steel exports declined 10% MoM, they still rose 12% YoY to 8 million tonnes due to sluggish domestic consumption. The recent imposition of US tariffs is expected to disturb global trade flows, potentially resulting in diverted steel shipments finding their way into markets like India.
Steel raw material prices: Domestic iron ore rates rose 4.3% MoM in March 2025 to ₹7,300 per tonne, while global prices slipped 1.5% MoM to $97 per tonne. Manganese also saw a 3% MoM rise to ₹18,429 per tonne.
Non-ferrous metals: Aluminium prices dropped by 3.9% MoM to $2,518 per tonne owing to better raw material supply. In contrast, copper prices climbed 3.8% MoM to $9,710 per tonne, driven by fears of trade disruptions due to US tariffs. Zinc rose 2.7% MoM, backed by industrial demand and output issues from major producers.
The spike in Indian steel prices during March was largely due to the proposed 12% safeguard duty. However, the overall impact may remain muted as this duty doesn’t apply to countries with which India has FTAs, like Japan, Korea, and Nepal — collectively accounting for over 60% of India’s steel imports in February 2025. In parallel, the large upcoming capacity additions in the domestic market are expected to keep a lid on steel prices. On the global front, soft Chinese demand and the US’s blanket 25% import tariff on steel could reshape trade patterns, intensifying competition in importing countries, including India. Input cost pressures may persist with rising iron ore prices, though some relief may come from declining coking coal prices. Despite these mixed cues, stretched stock valuations continue to limit the sector’s upside potential. As such, we maintain a neutral stance on the steel space.
Chemicals:
The chemical sector continues to witness a volume-driven recovery, although pricing remains under pressure due to subdued global demand, intensified competition—especially from China—and ongoing macroeconomic uncertainty. In the March quarter, most companies are expected to report growth led by higher volumes, but margin improvement may remain limited due to persistent pricing challenges. While prices of many specialty chemicals have stabilised, a sustained uptrend is still elusive.
Within agrochemicals, a slow but steady recovery is anticipated, aided by new product introductions and the growing shift toward sustainable agriculture. Volume growth is likely to gain traction in the coming financial year, with companies investing in innovation to meet evolving farming needs. The pharma segment remains supportive of demand, as Indian drug makers scale up production to capitalise on opportunities arising from patent expirations.
However, demand in the automotive and textile sectors remains uneven. The auto industry is still facing weak demand and supply chain constraints, which is affecting the consumption of chemicals used in vehicle manufacturing. A gradual recovery is possible, though contingent on macroeconomic stability. The textile sector, on the other hand, is grappling with overcapacity and soft export orders, creating a tough pricing environment for related specialty chemicals. A rebound in this segment will likely hinge on global consumption trends.
Select molecules like ATBS continue to show structural strength, with healthy demand and stable pricing supporting further capacity expansion. Meanwhile, segments like fluorochemicals have seen renewed interest following recent price moves, prompting the resumption of certain stalled expansion projects.
Overall, specialty chemical companies are expected to post strong topline growth supported by capacity additions and diversification beyond agrochemicals. However, margin pressures persist due to an unfavourable product mix and subdued realisations. While a few players are likely to benefit from segment-specific tailwinds in pharma, polymers, or advanced intermediates, others may continue to face headwinds in segments like SDAs or basic chemicals.
Valuation-wise, most companies are trading close to their long-term averages, reflecting a cautious investor stance. Until pricing recovery becomes more visible, margin pressures may persist, limiting near-term upside. For now, the focus remains on companies showing healthy volume traction, diversified product portfolios, and strong execution in high-growth segments.
Banking/Finance:
The Indian banking sector entered Q4FY25 facing headwinds from slowing economic momentum, muted government expenditure, and cautious regulatory stances on retail credit risks. Systemic credit growth decelerated to approximately 11% YoY as of March 2025, down sharply from 20.5% in FY24. This moderation was largely driven by a slowdown in unsecured lending, tighter liquidity, and efforts by banks to realign their loan-to-deposit ratios (LDRs).
Public sector banks remained more aggressive in extending credit, particularly across retail, MSME, and corporate segments, while private banks prioritised deposit mobilisation and balance sheet discipline. Deposit growth also softened to 10.3% YoY, with continued pressure on CASA (current and savings account) mobilisation and rising reliance on term deposits. The gap between credit and deposit growth narrowed significantly to just 0.5% by March-end, compared to over 6% at the start of FY25.
The Reserve Bank’s recent 25 bps rate cut initiated the easing cycle, and another similar cut is anticipated. However, the effect of lower repo rates is expected to weigh on yields, especially for banks with a higher proportion of floating-rate loans, while funding costs have remained firm. As a result, net interest margins (NIMs) are likely to contract by 4–12 basis points in Q4FY25. Larger and PSU banks may see marginal impact, whereas mid-sized banks and small finance banks could face sharper pressure.
Fee income trends are expected to be healthy, supported by seasonality, while treasury performance could vary. Operating expenses are likely to remain under control, and pre-provision operating profit (PPOP) is expected to grow modestly. Asset quality across most banks is seen holding steady, though mid-tier and smaller banks with higher exposure to microfinance and credit card portfolios may continue to face stress. Slippages in unsecured segments remain a concern, and credit costs are expected to rise sequentially by around 16%, potentially capping overall profitability gains.
In the NBFC space, disbursement activity picked up sequentially in Q4FY25, supporting robust growth in assets under management (AUM). Vehicle financiers led the charge with AUM growth near 22% YoY, while diversified financiers saw around 26% growth. Margins stayed stable for housing finance players, with slight upward trends seen in vehicle finance. However, diversified and gold loan NBFCs may have experienced marginal NIM compression.
Asset quality remained broadly stable across most NBFCs, though the microfinance segment continued to face elevated stress, particularly in geographies like Karnataka. While slippages remained high, there are early signs that stress may be plateauing. In contrast, affordable housing financiers maintained healthy disbursement momentum, with steady margins and improving asset quality. Gold financiers showed muted AUM growth, but their core loan book remained strong. Diversified NBFCs and vehicle financiers appear well-positioned for sustained earnings, supported by stable credit costs and controlled asset quality metrics.
Looking ahead, investor focus will remain on deposit mobilisation trends, the trajectory of unsecured loan portfolios, and the potential impact of further rate cuts on sectoral margins and profitability.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- The RBI reduced the repo rate by 25bps to 6% in April, marking a second consecutive cut amid cooling inflation, slower growth, and global trade tensions. It also trimmed the FY26 GDP forecast to 6.5% and lowered inflation projections to 4%, staying within its target range.
- US President Trump announced a 90-day pause on the newly proposed reciprocal tariffs for all countries except China, citing investor pressure and bond market volatility. During this period, a lower 10% tariff will apply. However, tariffs on China were sharply raised to 125% due to retaliatory actions and trade tensions. The US aims to isolate China while negotiating separate trade deals with other nations, including India, which is working toward a partial bilateral agreement. India is also pursuing trade pacts with the EU and UK, while preparing stricter anti-dumping measures to counter Chinese imports.
- India’s Manufacturing PMI for March 2025 was revised upward to 58.1, beating both the flash estimate (57.6) and February’s reading (56.3). This marks the strongest performance since July 2024, driven by sharp rises in new orders, output, and purchasing activity.
- India’s Composite PMI rose to 59.5 in March 2025, an eight-month high, driven by the strongest factory growth in 20 months and continued service sector expansion.
- India’s Services PMI was revised to 58.5 in March 2025, down from 59.0 in February, signalling a slight slowdown but marking 44 straight months of growth. Foreign sales grew at their weakest pace since December 2023.
Fundamental outlook:
The RBI’s April monetary policy decision marked a pivotal turn in its policy direction, with a 25 bps repo rate cut to 6% and a clear shift in stance from ‘neutral’ to ‘accommodative’. This move builds on the earlier cut in February and reflects the central bank’s growing comfort with the inflation trajectory, allowing it to pivot towards supporting growth amidst rising global uncertainties.
The CPI inflation forecast for FY26 was revised down to 4% from 4.2%, owing to factors like a favourable rabi harvest, assumptions of a normal monsoon, easing household expectations, and a high base from FY25. Food and beverage inflation saw a sharp decline, falling from 9.7% in October 2024 to 3.8% in February 2025, the lowest since May 2023. Meanwhile, core inflation (ex-food and fuel) inched up slightly to 4% in February from 3.8% in January.
The RBI’s growth estimate for FY26 was trimmed to 6.5% (from 6.7%), reflecting concerns about trade-related disruptions following the reciprocal tariff actions by the US, which pose significant downside risks to India’s exports, particularly in sectors like engineering goods, electronics, pharma, and textiles. However, domestic growth drivers such as improved private consumption (urban and rural), increasing capacity utilisation, government capex, and strong balance sheets of banks and corporates offer some resilience.
Importantly, the RBI has acknowledged the possibility of another 50 bps in rate cuts, should growth falter or inflation remain subdued. The real policy rate now stands at 2% (repo at 6% minus expected inflation of 4%), leaving enough room for easing. The central bank indicated that, under the accommodative stance, rates could even fall below the estimated neutral real rate of 1.5%, if necessary.
On the external front, India’s current account deficit remains modest at 0.7% of GDP for FY25. Yet, the balance of payments faces stress from volatile capital flows, particularly foreign portfolio investment (FPI) outflows of $18.9 billion between October 2024 and March 2025, reversing the inflows of $21.6 billion in the preceding six months. These outflows have weighed on the rupee, which is further exposed to pressure due to the interest rate differential with US Treasuries.
The RBI has been proactive in managing liquidity and maintaining financial stability. It infused ₹6.8 trillion in durable liquidity from January to March 2025 via open market operations (₹2.8T), term repo (₹1.8T), and USD/INR swaps (₹2.2T). As a result, system liquidity moved into surplus by end-March, supporting credit transmission and softer market rates.
In sum, the policy outlook now prioritises sustaining the growth recovery while remaining watchful of inflation risks from currency depreciation, weather shocks, or geopolitical tensions. The RBI’s flexibility, backed by favourable inflation dynamics and a credible growth framework, sets the stage for more supportive policy action if needed.
Technical outlook.
The Indian bond market has responded positively to the RBI’s dovish pivot. The benchmark 10-year G-Sec yield fell 21 bps YTD in 2025, bolstered by consistent OMO purchases, falling crude oil prices (Brent down ~8.8% between Jan–Mar 2025), and softening US Treasury yields. With inflation expected to hover near the 4% target, and further rate cuts likely, bonds are poised to extend their gains. Additionally, India’s inclusion in global bond indices has attracted $16.9 billion in net debt inflows YTD, enhancing support for sovereign debt instruments.
Equity markets, meanwhile, have seen significant FPI outflows ($17.2 billion net YTD in equities), reflecting global risk aversion amid trade tensions and monetary divergence. However, domestic institutional investors and a liquidity-friendly environment have helped cushion large drawdowns. Rate-sensitive sectors such as financials, real estate, autos, and consumer discretionary could benefit from lower borrowing costs and a rebound in credit demand.
Despite macro headwinds, the domestic demand story remains intact, with robust retail sales, a pick-up in housing and vehicle registrations, and strong bank credit growth. These fundamentals, coupled with RBI’s supportive policy measures, could trigger a relief rally in equities, especially in segments aligned with domestic consumption and infrastructure.
On the currency front, the INR remains vulnerable due to capital outflows and external uncertainties. However, RBI’s active interventions via USD/INR swaps and bond purchases have so far stabilised the rupee within a manageable band. According to the Monetary Policy Report, a 5% depreciation in the INR from the baseline (₹86/USD) could raise inflation by 35 bps, a risk the central bank is monitoring closely.
From a technical standpoint, the Nifty and Sensex have entered a consolidation phase following recent volatility. Key support for the Nifty lies near 21,700–21,800, while a decisive breakout above 23,200 could trigger short-term upside, major resistance leve is 23800. For bond markets, continued RBI support suggests lower yields in the medium term, making long-duration bonds attractive.
Outlook for the Global Market
US Market:
The US economy is entering a challenging phase as sweeping new tariffs, announced in early April, trigger a significant shift in the macroeconomic environment. The effective tariff rate has surged from around 2% last year to over 20% today—the highest level seen in more than a century. These measures, which include a 10% universal import tax and reciprocal tariffs ranging from 11% to 50% on select trading partners, now cover nearly 80% of US imports. While some moderation is expected, with the effective rate possibly settling around 15% through 2026, the near-term impact is clearly stagflationary.
The immediate consequence of this policy shift is a sharp rise in inflation. Core PCE inflation is projected to climb to 3.3% year-over-year by the end of 2025, with price pressures concentrated in goods due to rising input and finished product costs. Businesses are currently working through inventories stockpiled ahead of the tariffs, but as those buffers fade, price hikes are likely to intensify. While services inflation may be more muted due to softer labour and demand dynamics, overall inflation is expected to stay well above the Fed’s 2% target through 2026.
Consumer sentiment has already taken a hit. Confidence indicators fell sharply in March, reaching a 12-year low amid growing concerns over tariffs and business conditions. Real consumer spending declined 0.6% in January and posted only a 0.1% gain in February, pointing to Q1 being the weakest quarter for consumption since 2020. A brief pick-up in big-ticket sales is possible in Q2 as consumers rush to beat price increases, but this will likely be short-lived. By the second half of the year, consumption is expected to contract more broadly, especially for durable goods.
The business investment outlook has also dimmed. Equipment spending saw a temporary boost in Q1—largely due to a rebound in aircraft shipments and pre-tariff purchasing—but capital expenditure is expected to weaken significantly going forward. Uncertainty around trade and fiscal policy is paralysing long-term planning. Intellectual property investment may remain relatively stable, but broader capex is set to decline.
The labour market, though still holding up, is beginning to show strain. Hiring intentions among small businesses have dropped, job openings are trending lower, and survey data suggest weaker employment across both manufacturing and services. Combined with efforts to shrink the federal workforce, layoffs are projected to increase. Nonfarm payrolls are expected to fall by an average of 50,000 jobs per month in H2, pushing the unemployment rate up to around 4.7% by early 2026. A gradual labour market recovery is anticipated in 2026 as lower interest rates and fiscal stimulus begin to support demand.
On the policy front, the Federal Reserve is walking a tightrope. While inflation is rising, it is largely seen as transitory and driven by supply-side factors. The Fed is expected to begin cutting rates from June, with five 25 bps reductions projected by year-end, bringing the federal funds rate down to 3.00%–3.25%. Quantitative tightening is likely to continue through 2025 before halting. Treasury yields are forecast to climb modestly, reaching 3.75% by December and 4.15% by end-2026, reflecting inflation risk and fiscal uncertainties.
In terms of fiscal policy, Congress is eyeing tax cuts and new spending measures, though their effects may not materialise until 2026. Meanwhile, higher tariff revenues could modestly delay the looming debt ceiling “X date,” now expected around August.
In summary, 2025 is shaping up to be a turbulent year for the US economy, with elevated inflation, weakening growth, and heightened policy uncertainty. The combination of rising costs, cautious consumers, and a softening labour market points to a stagflationary backdrop. While policy easing may offer some relief, a more durable recovery is expected to unfold only in 2026, once inflation cools and fiscal stimulus begins to take effect.
Outlook for Gold
Gold prices in India surged dramatically on April 10, with 24K gold in Delhi spiking by ₹29,400 per 100 grams in a single session. The price for 10 grams of 24K gold is now hovering just ₹6,500 shy of the ₹1,00,000 milestone—a psychological level that’s drawing attention across markets. This sharp uptick coincided with Mahavir Jayanti, a festive period when gold demand traditionally sees a boost due to cultural and seasonal buying patterns.
However, the domestic rally is closely tied to global factors. International gold prices spiked in response to heightened geopolitical tensions, particularly the renewed trade war rhetoric between the United States and China. A sudden escalation came after the US announced a hike in tariffs on Chinese imports, increasing them from 104% to 125%. Although a 90-day pause was introduced for tariff hikes on other nations, investor sentiment had already shifted significantly.
The global financial environment is increasingly risk-averse. Fears that aggressive tariff measures could spur inflation and dampen global growth have driven investors away from equities and industrial commodities. Instead, capital is flowing into safe-haven assets like gold, which tends to outperform during periods of uncertainty.
Looking ahead, the outlook for gold remains positive in the medium term. Demand in India is likely to stay elevated through the ongoing festive season and into the wedding months. Globally, if geopolitical friction and economic policy shifts continue to drive volatility, gold could maintain its upward trajectory. While short-term corrections are possible, the underlying drivers of inflation fears, currency instability, and financial market stress continue to make gold an attractive hedge in investor portfolios.
What should Investors do?
We continue to follow a staggered investment strategy in Indian equities, focusing on high-quality companies with strong fundamentals. However, we are holding back from aggressive allocations and adopting a more measured stance until there is greater clarity on corporate earnings and policy direction.
On the other hand, we have paused fresh investments in US equities. While the recent 90-day pause in US tariffs offers temporary relief, it does not address the underlying macroeconomic challenges. The tariff on Indian exports remains elevated at 26%, and the sharp hike in tariffs on Chinese goods to 125% adds further uncertainty. These developments are already weighing on key Indian export sectors like IT, pharma, and autos.
Though the short-term tariff pause may ease immediate pressures, the broader environment remains fragile—especially with China excluded from the relief and the US election cycle adding to policy unpredictability.
At home, we are closely tracking the upcoming Q4 results to gauge trends in consumption, rural demand, and corporate profitability. The RBI’s downgrade of growth projections and sustained FPI outflows are clear signs of cautious sentiment in the near term.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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