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Informist, Saturday, Mar. 1, 2025

 

By Anshul Choudhary

 

MUMBAI – The equity market is not yet out of the waters and is likely to fall further in March after having fallen for five months in a row, according to analysts and market participants. While weak earnings growth and possibility of further downgrades in earnings estimate for 2025-26 (Apr-Mar) remain a major concern, continuous sales by foreign investors and the risk of tariff threats from the US turning into a full-fledged global trade war are likely to keep sentiment weak in the near term, market participants said.

Analysts' said the market may show a clear direction once it gets clarity on tariffs, which is only likely at the beginning of April when Trump is expected to announce reciprocal tariffs. A large section of the market is worried that tariffs could affect Indian companies' earnings growth, which has already seen a slowdown with corporate earnings of the Nifty 50 companies dropping to low single digits for three straight quarters now.

 

In a report last week, Goldman Sachs said India's GDP is expected to see an impact of 10-60 basis points if the US imposes reciprocal tariffs on all countries, including India. This will deepen the problem as growth has already slowed down. The government's second advance estimates Friday showed GDP growth is expected to be 6.5% in FY25, far lower than 9.2% in FY24. The Reserve Bank of India expects FY26 growth to be only slightly higher at 6.7%.

 

These risks have made it difficult for analysts to predict the exact level from which benchmark indices may bounce back, at least in March. "Fundamentally, I don't think we have reached bottom till Q1 earnings are out," Amit Kumar Gupta, founder of Fintrekk Capital, said. A head of technical and derivatives research at a top brokerage house had a scathing remark when asked about market's direction, he said: "Don't ask me (market's) bottom now! There is no surety of bottom. I won't be surprised if markets fall 5-7% more."

 

A few analysts' even refrained from giving one-month support levels for the Nifty 50 citing uncertainty over tariffs and weak sentiment. If sentiment doesn't improve soon and foreign investors continue to sell Indian equities, the Nifty 50 may fall to 21800 points in March, the median of support levels given by 10 brokerages showed, implying a downside of 1.5%. A fall to 21800 points would push benchmark indices closer to a bear market as the fall would imply a decline of over 17% from its lifetime high touched in September last year. Friday, the Nifty 50 dropped nearly 2% to close at 22124.70 points.

 

 

 

Some analysts had a different view and downplayed the risks related to tariffs. They said Trump was merely using tariffs as threats to push countries to lower duty against US products. Analysts argued Trump is likely cognizant of the possibility that these tariffs may lead to inflation in the US. These analysts do not expect the market to see any sharp fall now and consolidate around current levels.

 

Some technical analysts have not discarded a possibility of a pullback as the Nifty 50 has fallen for five straight months, pushing the index to oversold levels on technical charts. According to the median of the estimates of 11 brokerage houses, the Nifty 50 is expected to face resistance at 23250 points if it rises, indicating an upside potential of 5%. Having said that, analysts largely agree sentiment currently favours bears until investors get more clarity on US tariffs and any gains might be used by investors as an opportunity to sell.

 

FPIs' RETURN UNLIKELY

The Nifty 50 has fallen nearly 16% from its lifetime high. This fall is largely due to extensive selling by foreign investors as domestic investors have been net buyers. Foreign portfolio investors net sold Indian equities for the second straight month in 2025 largely to fund their investment into the US market amid hopes of better economic growth under the Trump regime. FPIs have net sold Indian equities worth nearly INR 1.13 trillion in the two months of the new year. Foreign investors hardly put money in Indian markets in 2024 with their net buying throughout the year being just over INR 4 billion.

 

The pace of FPI outflows from emerging markets is likely to slow down as growth in US comes under question and valuation there begins to look expensive. Tariff increases will stoke US inflation and will most likely limit room for the US Federal Reserve to cut interest rates further. Against this backdrop, foreign investors are looking at other countries for better valuations and India is not yet on their radar – at least till earnings growth improves, analysts said. 

 

"Many emerging market fund managers were hopeful of inflows into EMs as an asset class later in the year as the valuation disparity with the US equity markets had become very high, but they did highlight that India would not be their first priority given slowing growth and relatively expensive valuations as of now," Pratik Gupta, chief executive officer of Kotak Institutional Equities, said in a note Thursday.

 

EARNINGS CONUNDRUM

Analysts are divided over when earnings growth will pick up and whether valuations have become favourable after the recent correction. Some analysts said earnings growth for Nifty 50 companies would return to double digits in the coming quarters, backed by higher spending by the government, tax relief announced in the Budget leading to better demand, and possibility of further cuts in interest rates by the Reserve Bank of India.

 

"Most of the downgrades are out of the way and few more that are left will be done in the coming one-two quarters, and then we are good to go," said Trideep Bhattacharya, president and chief investment officer - equity at Edelweiss Mutual Fund. "Capex momentum should improve this year as some of the issues of 2024 such as election are not present now...consumption also is expected to improve after April once tax relief begins to show its impact." 

 

Emkay Global Financial Services, in a report last week, maintained its December-end target of 25000 points and said the Nifty 50 was in a "buy zone" around 22500 levels. The brokerage expects sentiment to improve from the June quarter as concern related to tariffs from the US are likely to recede by then, and earnings downgrades will be done with as signs of pickup in discretionary consumption become visible.

 

However, there are other analysts who said it may take longer for recovery as capital expenditure by private companies is unlikely to pick up significantly in the coming months and other measures may take time to play out. 

 

"The tax relief is a very small measure, and it is not like demand will pick (up) from the first month of next financial year. Also rate cut measures will take a year or so to have a (significant) impact on the growth," Gupta of Fintrekk Capital, said. He pointed out there is a risk that FY26 earnings estimates for the Nifty 50 companies may come down to high single digit growth from the current expectations of a 10-12% rise.

 

There is also a worry that spending on capital expenditure may not be as high as expected, considering the government intends to lower its fiscal deficit which is seen as a hinderance to higher spending. The government plans to lower its fiscal deficit to 4.4% of GDP in FY26 from 4.8% in FY25.

 

Following are the support and resistance levels for the Nifty 50 index for March, based on responses from nine brokerages:

 

BROKERAGE	Support 1	Support 2	Resistance 1	Resistance 2
Anand Rathi Shares and Stock Brokers	21800	-	22800	-
Axis Securities	21800	-	23500	-
Emkay Global Financial Services	22100	21800	23300	-
Cholamandalam Securities	21800	-	23000	-
Globe Capital Market	22000	21800	23050	23250
ICICI Direct Research	-	-	23200	23400
Indiacharts	21850	21300	22800	23300
NVS Brokerage	21800	21500	22800	23200
Religare Broking	22000	21800	22500	22750
SBICAPS Securities	21800	-	22800	23000
Sharekhan	22000	-	24000	-

End

 

Edited by Akul Nishant Akhoury

 

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