Bulls take charge: Large-caps and smids help stage a recovery

Mumbai: The bulls roared back into Dalal Street on Tuesday, as both domestic and foreign investors pumped for Indian equities, sending the markets up by the highest margin in more than a month. Experts said the sharp correction seen over the past six months encouraged investors to buy as stocks fell to attractive levels.

Broader indices of the smallcap and midcap variety joined the party on Tuesday as both benchmark indices—NSE Nifty 50 and BSE Sensex—spurted more than 1.5%, making investors richer by a staggering ₹7 trillion, according to data from BSE.

This was the biggest rise the indices have seen since 4 February, when they rose about 1.6%, and the fifth time this month in 11 trading days that the Nifty 50 has ended in positive territory, per data from NSE.

On Tuesday, the Nifty 50 settled at 22,834.30 and the Sensex ended the day’s session at 75,301.26, both up 1.5%. Meanwhile, Nifty Smallcap 250 ended 2.7% higher at 14,517.60 and Nifty Midcap settled at 49,516.90, up 2.18% on Tuesday.

Also read | Smallcap survivors: These sectors weathered the market correction

Tuesday’s rise was marked by net buys from both foreign institutional investors (FIIs) and domestic institutional investors (DIIs). According to data from BSE, DIIs net bought Indian equities worth ₹2,534 crore, while FIIs net bought ₹695 crore.

Experts remain cautiously optimistic, considering the Nifty 50 has fallen more than 10% in the past six months (since 18 September),with some seeing green shoots from both fiscal and monetary angles.

They expect Q4 FY25 earnings to be strong, which could boost market sentiment. Lower inflation readings may lead to rate cuts, easing capital costs for businesses. On the economic front, strong GST collections and improving industrial production (IIP) suggest a potential recovery. Steady SIP inflows from domestic investors are providing support even as foreign investors largely continue to sell. At the same time, the developing tariff war and related uncertainties could significantly impact both global and Indian markets.

What experts say

Kkunal Parar, vice president at Choice Equity Broking, said nearly 80% of Nifty 50’s constituents are trading below their 200-day daily moving average, “which means that the market is in oversold territory”.

He added that the bounce back is temporary and the Nifty 50 needs to stay around 22,500–22,700 for the gains to sustain. So far in March, Nifty 50 has attained this level thrice, even while it has climbed 3% through the month, according to data from Capitalmarket. Likewise, Nifty Smallcap 250 and Nifty Midcap 100 have gained 5.5% and 3.2%, respectively.

“This sharp correction has reset valuations to more attractive levels while India’s valuation premium to emerging markets has also normalized to around 50% (down from 70% in September 2024), now closer to historical averages,” said Dhiraj Relli, managing director & chief executive officer of HDFC Securities.

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On the other hand, Neelesh Surana, chief investment officer (CIO) at Mirae Asset Investment Managers (India) feels the market correction has largely run its course. He anticipates a turnaround fuelled by fiscal and monetary support—GDP could rebound over the next few quarters, driven by stronger rural incomes and policy tweaks; and monetary measures could lead to about 75 bps interest rate easing this year, with 25 bps already implemented in February.

He predicts another 25 bps cut due to cooling inflation, and a further 25 bps when the RBI shifts its stance from ‘neutral’ to ‘accommodative’, accompanied by sustainable improvement in liquidity. However, Surana does not foresee significant earnings growth yet, given firm commodity prices, rising competition, and potential disruptions in various businesses, which could limit margin expansion.

“Nearly six months of negative performance and 12 months of flat performance has weighed on investor sentiment,” says market expert Ajay Bagga. However, he sees this as a temporary setback and expects funds to flow back as Indian markets recover. The stock market veteran also pointed out that a large chunk of household savings is sitting on the sidelines, ready to enter once the market gains momentum or dips to attractive levels.

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FII outflows, which had been a major factor, could also see reducing intensity as US bond yields cool, said Aniruddha Sarkar, CIO and portfolio manager at Quest Investment Advisors. “With signs of a US slowdown, higher tariffs driving inflation, and the dollar index peaking, there’s little reason for FIIs to keep pulling money from India.”

India is well-positioned to attract foreign capital, especially with growing concerns over a US recession, a weaker dollar, and India’s relatively stronger growth prospects, says Prabhakar Kudva, director and principal officer of portfolio management services at Samvitti Capital, which manages money for high networth individuals (HNIs) and institutional clients. “We could see the market finding direction in the next couple of months,” he said.

Kudva’s playbook is centred on companies with a sharp shift in their earnings trajectory—think businesses that were growing at 15% and are now clocking 40%. Turnaround stories are part of the mix, but the broader focus is on tactical switches. He is confident that the real alpha will still come from midcaps and smallcaps, albeit with higher risk, while large caps will mainly serve as a safety net.

Standard Chartered’s India Investment Strategy report (dated 12 March) expects volatility to stay high in the near term as markets navigate an uncertain environment. However, the firm sees a better risk-reward outlook for domestic equities over the next 12 months, driven by reasonable valuations, improving growth and earnings cycles, and easing financial conditions. “We are overweight on equities and would use volatility to buy on dips,” the report read.

On Tuesday, the market rise was led by ICICI Bank (3.3%), HDFC Bank (1.5%), Larsen & Toubro (3.1%), Mahindra & Mahindra (3%), Infosys (1.1%), and Kotak Mahindra Bank (2.1%) powered the rally in headline indices.