Indian equity markets have experienced considerable volatility recently, influenced by a mix of domestic and international factors. While the outlook remains optimistic, several key developments are likely shaping investor sentiment.
As we enter the earnings season for the final quarter of FY 24-25, expectations are for a positive recovery in earnings. However, it is unlikely to match last year's performance, as the election period led to a slowdown. Historically, this pattern has been observed, with a dip in government expenditure during elections followed by an increase in spending post-elections, which typically boosts earnings. The outlook for Q1 of FY 25-26 is much stronger, especially as it will also be impacted by the monsoon, which is expected to be normal this year.
The market has corrected by 20-25% from its peak, but India is not anticipated to face significant effects from any potential tariffs imposed by the United States. Over the past three months, there have been positive signals, including an improvement in GDP, a budget that supports economic growth, and a 25bps rate cut in February 2025. No major structural changes have occurred in the market, and a recovery seems likely. We believe we are close to the bottom looking at the macro fundamentals.
Debt Market Outlook
March 2025 witnessed fluctuations in the rupee along with liquidity actions by the RBI.
Debt markets may continue to react to movements in the growth expectation, inflation trends, and FOMC signals.
As inflation stabilizes and growth remains sluggish, the Reserve Bank of India (RBI) is likely to implement counter-cyclical measures to provide additional policy support.
Source: RBI, Bloomberg, CCIL, MOSPI (as on 31st March 2025)