March is Usually Strong for Indian Equities, Will Trump’s Policy Swings Disrupt the Trend?

Stock Market This Week: The first week of March came as a relief for investors as domestic stock markets witnessed a rally despite limited factors of optimism. Benchmark indices, Sensex and Nifty, advanced over 1,370 points and 379 points, respectively, last week. The volatility gauge, Nifty Vix, declined over 4.1% during the same period.

While many market players viewed it as a much-need breather, others called it a 'dead cat bounce' with anticipations of more pain ahead. Trump's trade policy flip-flop alongside China, once again gaining momentum with heightened FII interest, is creating trouble for D-street investors.

On year-to-date basis, the Hang Seng index has surged over 23% or 4,607 points. Meanwhile, NSE Nifty50 has declined by around 5% during the same period. "There is big buying in Chinese stocks triggered by attractive valuations and expectations from the recent positive initiatives by the Chinese govt towards their big businesses. The rally in Chinese stocks has resulted in the Hang Seng Index performing exceedingly well," said V.K. Vijayakumar, chief investment strategist, Geojit Financial Services.

So far, (as of March 7) FIIs have offloaded equities worth Rs 24,753 crore, bringing total equity sales in CY2025 to Rs 1,37,354 crore.

However, March is usually considered a strong month for domestic equities. Historical data (excluding the COVID year) indicates that Nifty 50, Nifty Midcap 100 and Nifty Smallcap 100 delivered average returns of 2.3%, 2.9% and 2.6%, respectively, during March month, as per a report by Yes Securities.

While past patterns alone might not result in a pure bullish play, certain trends indicate incoming stability in markets, if not a straight uptrend, uphead.

A respite amid market turmoil

Foreign capital outflow continues to weigh heavily on investor sentiment causing panic across D-street. However, the pace of selling has somewhat reduced. As per a report by Elara Securities, outflows from India have slowed to their lowest level since January 2025. Last week's outflows stood at $113 million compared to the average weekly outflow of $460 million since the beginning of the year.

The current market correction has also eased hot valuations in certain pockets, which was necessary. The bloodbath in domestic equities has resulted in a significant valuation adjustment across indices. The Nifty-50 is now trading at a forward PE of 18.6x, which is 9% below its long-term average, as per Motilal Oswal. India’s market cap-to-GDP ratio, which hit a high of 146% last year in September month, has also declined to 120%. A level closer to its historical averages.

As for investors flocking to China, analysts see it as a temporary trend. "This is more likely to be a short-term cyclical trade since Chinese corporate earnings have continuously disappointed since 2008. The recent decline in the dollar index will limit the fund flows to the US," said Vijayakumar.

Sectors to avoid

Sectorally, private banks and metals have held up relatively well. But auto, real estate and capital goods have seen steeper valuation drops, as per analysts. The only sector that seems to trade at a valuation premium is IT, as demand for AI and cloud-based services continues to surge.

Vikas Jain, head of research at Reliance Securities mentioned that export-driven sectors like IT and Pharma should be cautiously tread as both the sectors might experience uncertainty ahead owing to Trump's tariff call. Inflation levels in the US economy might also play a key role in further guidance.

Meanwhile, analysts are now focusing on domestic consumption-driven sectors, alongside OMCs which seems like the most discounted sector as of now.

"We believe, Nifty Metals, Nifty Financials and broader markets are providing long opportunities at the current juncture. CDSL, CESC, GPIL, Tata Steel, Hudco and JSW Energy are likely to stage a rally of 20-30%," Yes Securities said in a report.

What strategy should investors adopt?   

It's hard to ignore the noise when panic-selling is at its peak. D-Street experts suggest that instead of focusing solely on stock picking strategy, investors should consider tax-loss harvesting, wherein underperforming stocks are sold to offset gains from other investments. This helps limit capital gains tax and defer some tax payments.

Rishabh Nahar, partner and fund manager at Qode Advisors PMS, recommends three simple steps for investors. "Harvest losses for tax benefits, trim laggards and offset gains. Lower return expectations. The last five years of equity returns won’t repeat, so churn wisely. Bull markets fill portfolios with high-growth, high-debt stocks. Bear markets demand discipline, clean out weak names and position for the next cycle."

Besides this, restructuring portfolios with more weightage to large caps can also be a good strategy, especially as the fiscal year comes to a close. Many large-cap stocks have witnessed a correction in the past few months and are trading at a discount to long-term historical average valuations. "Once we have more clarity post the full year earnings for FY25 starting from the middle of the next month it will give opportunity to invest in bottom-up stock picking ideas," Jain said.