Bulls Take Charge! Can the Indian Stock Market Break Its 5-Month Losing Streak in March?
Bulls Take Charge : The Indian stock market is showing strong signs of recovery in March after a prolonged downturn that lasted for five months. This resurgence comes despite persistent foreign selling, indicating a shift in market sentiment driven by domestic investors and improving macroeconomic conditions. With frontline indices such as Nifty 50 and Sensex already gaining over 3% this month, investors are hopeful that the market will finally break its losing streak.
A Look at the Market’s Resurgence
After facing a relentless bearish phase since October, which dragged the indices to a nine-month low, March has injected much-needed optimism into Dalal Street. Despite foreign portfolio investors (FPIs) continuing to be net sellers, the outflows have slowed, and domestic institutional investors (DIIs) have stepped in to absorb the selling pressure.
Historically, March has been a strong month for recoveries. Over the past 30 years, major indices like the Nifty 50, Sensex, and Nifty 500 have witnessed significant corrections on eight occasions. However, in 22 of those years, the market has demonstrated resilience and continued its upward trajectory. Data also shows that since 2009 (excluding the 2023 outlier), March has delivered an average return of 1.7%, further supporting the case for a potential rally.
What’s Driving the Recovery?
- Large-Cap Valuations Becoming Attractive
The sustained sell-off over the past five months has pushed many large-cap stocks into oversold territory, making their valuations more attractive. Investors are now showing renewed interest, particularly in financial stocks, which have seen a strong rebound. - Supportive Domestic Policies
The Reserve Bank of India (RBI) has taken various measures to stimulate liquidity and economic growth. Additionally, India’s softer-than-expected inflation in February has fueled hopes of a rate cut in the near future, further boosting market sentiment. - Declining Crude Oil Prices
India is heavily dependent on oil imports, covering nearly 85% of its crude requirements. The recent drop in crude oil prices has eased concerns about inflation and fiscal deficits, providing further support to the stock market. - Weakening US Dollar
The US Dollar Index has seen a sharp correction and is now trading near a five-month low. A weaker dollar benefits emerging markets like India by attracting more capital inflows, leading to increased liquidity in the stock market. - Global Brokerage Firms Bullish on India
Several global brokerage firms have turned positive on India. Morgan Stanley recently downplayed concerns over reciprocal tariffs, stating that they pose only a minor risk. Similarly, Jefferies highlighted that India typically outperforms other emerging markets within 90-180 days after a period of underperformance. Citi also upgraded India’s rating to ‘Overweight,’ forecasting Nifty 50 to reach 26,000 by December 2025.
Key Market Risks to Watch
Despite the current optimism, there are still some risks that investors should keep an eye on:
- Foreign Institutional Investors (FII) Selling: If foreign investors continue to exit the market, it could put downward pressure on stocks.
- Geopolitical and Trade Uncertainties: Concerns over potential reciprocal tariffs from the US could impact investor sentiment.
- High Broader Market Valuations: While large-cap stocks are becoming attractive, mid and small-cap stocks continue to trade at high valuations, raising concerns of overheating.
Financial Ratios at a Glance
| Indicator | Value |
|---|---|
| Nifty 50 P/E Ratio | 21.5x |
| Sensex P/E Ratio | 22.1x |
| Nifty 50 P/B Ratio | 3.2x |
| Sensex P/B Ratio | 3.5x |
| India’s CPI Inflation | 4.8% |
| USD/INR Exchange Rate | 81.5 |
| Brent Crude Price | $78/barrel |
| FII Outflows (March) | ₹7,500 Cr |
| DII Inflows (March) | ₹9,000 Cr |
Will the Market Rally Continue?
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remains cautiously optimistic. He notes that domestic macros favor a continuation of the rally, but external uncertainties still pose risks. If FIIs shift to buying mode, the rally could sustain, but investors should stay alert to external factors like trade policies and global economic conditions.
He also highlighted that domestic-focused sectors, particularly financials, are leading the rally. Beaten-down mid and small-cap stocks have also bounced back, but investors should be cautious due to high valuations in the broader market.
Key Takeaways: Q&A for Easy Understanding
Q1: Why is the Indian stock market rallying in March?
A: The market is rebounding after a five-month losing streak, driven by attractive valuations, strong domestic buying, lower crude oil prices, and a weaker US dollar.
Q2: Are foreign investors still selling?
A: Yes, FPIs are still net sellers, but their outflows have slowed. Domestic institutional investors (DIIs) have absorbed much of the selling pressure.
Q3: What role does inflation play in this rally?
A: February’s lower-than-expected inflation has raised hopes of an RBI rate cut, boosting investor sentiment.
Q4: How does a weak US dollar benefit India?
A: A weaker dollar makes emerging markets like India more attractive for foreign investors, increasing capital inflows.
Q5: What are the key risks that could impact the market?
A: Continued foreign selling, potential trade tariffs from the US, and high valuations in mid and small-cap stocks could pose risks.
Q6: What do experts predict about the market’s future?
A: Analysts believe that the rally can continue if FIIs turn buyers and domestic economic conditions remain favorable. However, external risks still linger.
March has brought renewed confidence to the Indian stock market, with the potential to end its prolonged downturn. While the bullish momentum is strong, investors should remain cautious and track global and domestic developments closely.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.