Nifty rebounded by 6% in March after five consecutive monthly declines. Broader market also rebounded after 2 months of correction with mid and small cap index up by 8% and 9.5% respectively. Almost all sectors ended in green except IT, which declined 1.5%. Power, Capital goods, oil & gas and metals sectors were up 10-15%. Global markets ended mixed. Brazil, India and Indonesia were up 7%, 6% and 4% whereas Taiwan, US SPX and Malaysia declined 6%, 6% and 4% respectively. Dollar index correcting 3.5% and some FPI flows returning towards month end aided the sentiment in March. After, continued selling in previous 2 months, FPI’s net sales in the cash market reduced to USD 400 mn while DII’s brought USD 4.3 bn worth of cash equities. Other key developments: (1) OPEC+ unveiled plans to gradually unwind its voluntary production cuts and (2) the FOMC kept policy rates unchanged at 4.25-4.5% while retaining the projection of two rate cuts in CY2025.

High-frequency data for March was mixed with a mild improving trend at an aggregate level. GST collections accelerated to INR1.96tn in March, (up 9.9%YoY) vs 9.1% in Feb. Central govt. capex spending rose at a softer pace of INR545bn in Feb (vs INR 720bn in Jan). PMI for manufacturing advanced to an 8-month high of 58.1, while services PMI edged down to 58.5 in March, due to slowing international orders. Credit growth remains steady as it grew by 11.1%YoY in Mar (vs 11% in Feb). Power demand improved to 6.7%YoY in Mar, from 2.9% in Feb. Vehicle registrations (Retail Sales) declined for two-wheelers and passenger vehicles in YoY terms, though in wholesale terms, they were slightly better. Naukri Job Index declined both on a YoY and sequential basis in March, led by a broadbased decline across sectors. Air passenger traffic grew at a healthy rate in YoY terms, albeit it moderated from last month's levels

Lingering concerns over the potential impact of US President Donald Trump's tariff policies and their subsequent economic consequences, remain the main focal point for the markets. As we write this, The US has announced its reciprocal tariffs for virtually every country around the world. An advalorem tariff of 22.5% is the highest ever and surpasses the Smooth-Hawley tariff cycle of 1933 of 19.5%, thus making this a one in a 100-year event like Covid. Headline tariffs, if imposed in their proposed form is likely to hit the US economy the most but also indirectly affect the overall global growth cycle. We believe bilateral tariff discussions will now take over and is likely to be a long drawn process that may run through much of 2025. For India too, while headline tariff of 26% is harsher than anticipated, granular details do not point to significant damage as much of India’s economy is domestic oriented.

While the above is going to keep overall market enthusiasm subdued, individual countries will likely exert their own available monetary/fiscal levers to sustain economic growth. In this regard, we take confidence in the recent measures taken by the RBI and the central govt to re-accelerate domestic growth. We expect India’s economic cycle to thus improve in coming quarters and earnings downgrades for the corporate sector to bottom out.

While it has been our view that the Indian markets may see back-ended performance in 2025, the sheer intensity of the market correction since start of this year and the general sentiment seems to suggest that incremental value is starting to emerge in the market sooner than we had originally envisaged. However, noting global uncertainties, investment returns are expected to accrue slowly and lesser in intensity than recent past. We would advise investors to take advantage of the improved risk-reward equation and use this phase of the market to incrementally build their equity allocations in line with their risk appetite.

Global markets remained on the edge as they unveiling of the US's country-specific policy on April 2nd. US treasury yields remained volatile during the month while closing flattish by month end. However, dollar index moderated sharply from 107.61 as on Feb 28, 2025 to 104.21 during Mar end as trading partner’s currency strengthened. INR also strengthened against USD from 87.48 during end of Feb’25 to 85.47 during end of Mar’25 on the back of sharp moderation in February trade deficit and healthy FPI’s flow in debt segment. Domestic G-Sec yields rallied by 15-25 bps across the curve with flattening bias in the longer end, triggered by RBI’s heavy Open Market Purchase Operations of G-Sec (OMOs) & year end led buying. Corporate bond yields also rallied with steepening bias but relatively lesser as corporate bond supply remained elevated. Banking liquidity turned surplus towards the month end on RBI’s aggressive liquidity measures. 

Outlook

Global markets are in turmoil as US has implemented very aggressive tariff policies against most of the countries. Many countries are expected to respond with similar high tariff against US which may further disrupt the global trade and pose risks to global growth. Even as inflation in US may flare up with higher cost of imported goods, its growth is also expected to get impacted and consequently, further rate cut expectations in US may swing rapidly depending upon its evolving growth-inflation dynamics. On the other hand, other countries may see the inflation moderating along with the domestic growth slowdown. Currency market may remain turbulent with risk-off sentiments.

Against the global uncertainty, Indian fixed income market is expected to remain largely resilient, though it may face knee-jerk reactions. Central Government’s clearly articulated fiscal consolidation path over next few years remains a structural driver for domestic fixed income market. G-Sec borrowing calendar for 1HFY26 is in line with expectations at 54% of FY26 gross borrowings. The supply is largely concentrated in the belly of curve with longer end having a relatively smaller proportion. Foreign investors remain net buyers in domestic debt with ~Rs 50,000 cr inflow in CY25 so far. RBI’s Open Market Purchase operations have exceeded the expectations which further sweetens the demand-supply dynamics. RBI’s dividend in May is expected to exceed the budgeted ~Rs 2.2 lakh cr on the back of higher accrual income and profits booked on Fx sale, thereby providing cushion to fiscal consolidation.

On monetary policy front , MPC took a pivotal turn to support growth and delivered a notably Dovish policy with a 25 bps rate cut and a policy stance change from “Neutral” to “Accommodative, exceeding market expectations. With inflation moderating faster than anticipated, policy actions prioritize growth over inflation. FY26 GDP and inflation have both been revised downwards by 20 bps, with inflation now expected to reach the RBI’s target of 4%. With the current policy rate at 6% and forward looking FY26 inflation projection at 4% leave the real rate at an elevated 200 bps. We believe RBI may find space for two more rate cuts so as to bring the real rates down to 150 bps. Additionally, if the global trade environment worsens further and disrupts growth, we may see further rate cuts by RBI.

G-Sec yields have rallied sharply over last few weeks with 10 yr G-Sec yield coming below 6.50% on the back of RBI’s OMOs announcement and rate cut expectations. While the yields may remain volatile and react to global developments, domestic factors remain quite supportive. Overall, risk-reward remains favorable at current juncture as healthy domestic demand-supply dynamics & expectations of further rate cuts and RBI’s OMOs will help in bringing the market yields down and likely generate capital gains. However, considering the shape of yield curve, it will be critical to position appropriately on G-Sec & Corporate bonds as we find G-Sec yield curve above 5 yr tenor and Corporate bond yield curve upto 5 yr tenor more attractive. Any uptick in yields due to still evolving global factors should be seen as an opportunity to build further exposure. Active fund management is critical as uncertainties may emanate from domestic inflation and global backdrop which may influence various yield curve segments differently.