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Informist, Friday, Apr. 4, 2025

 

By Alina Geogy

 

MUMBAI – The Indian equity market in April will be more volatile than it has been in recent months as it reacts to the emerging global tariff war and the stimulus that a rate cut by the Reserve Bank of India is likely to provide. Analysts expect the domestic benchmark indices to move in a total band of almost 6% this month, with the positive end of the range being slightly higher than the negative end. The upcoming earnings season starting mid-April will drive the market, as will the action of foreign portfolio investors who have recently turned net buyers of Indian stocks after several months.

 

For April, the Nifty 50 is expected to find support at 22750 points, which is 2.2% lower than Wednesday's close, according to a median of estimates by 10 domestic brokerage firms. The index might face resistance at 24075 points, which is 3.6% higher than Wednesday's closing level, as per the compiled data.

 

On Wednesday, Trump announced a 10% tariff on imports from almost all trading partners along with additional reciprocal levies that differed by country. Trump said India will face a 26% reciprocal tariff, while China will face a tariff of 34%, and the European Union will be hit with a levy of 20%. He described these duties as not a full reciprocal tariff but rather about half of what other nations "have been charging us."

 

Markets around the globe fell sharply after the tariff announcements. The Indian benchmark indices also took a hit, though the fall was limited. The Nifty 50 closed 0.4% lower at 23250.10 points Thursday. This is down 11.5% from its record high of 23250.10 points hit Sept. 27.

 

The upcoming US-India trade agreement will play a crucial role as it will impact export-oriented sectors and overall economic growth, analysts said. All eyes will be on the reaction of the targeted countries and possible trade negotiations or retaliatory tariffs, they said. 

 

"The tariffs imposed are slightly worse than expected, higher than expected. But, then there is across-the-board increase in tariffs for all countries," V.K. Vijayakumar, chief investment strategist at Geojit Financial Services, said. "And when you compare the tariffs imposed on India with the tariffs imposed on, let's say, China, Bangladesh, Sri Lanka, and such other countries, the tariff rate on India is slightly lower." 

 

However, that is not a big consolation, as global trade could take a hit from these tariffs. But, "there will be only a marginal impact on India's economic growth rate because India has $125 billion bilateral trade with the US", Vijayakumar said. "We have a $37-billion trade surplus with the US, but then this increase in tariffs will impact India's exports to the US only by around $4 billion... that is only 0.1% of India's GDP," he said.

 

The bigger concern is that US tariffs could trigger retaliatory tariffs from other countries, which could lead to a trade war, analysts said. "If global trade declines, global GDP will also decline. According to the IMF (International Monetary Fund), global GDP growth for 2025 is expected to be 3.3%. But then these tariffs can bring it down 1% at around 2.3-2.5%, which is a steep cut," Vijayakumar of Geojit said. From a market perspective, the lower economic growth means that earnings could also decline, he added. There will be a decline in investment by companies as they might now consider putting investments on hold due to the high uncertainty, he said.

 

Ultimately, customers in the US will have to pay a higher price because of these tariffs, leading to a rise in inflation. This rising inflation will put the US Federal Reserve "in a tight spot" and the three rate cuts, which were expected from the Fed this year, may not materialise, Vijayakumar said.

 

Meanwhile, the US exempting pharmaceutical products from reciprocal tariffs is a big positive. Several analysts believe the US has spared the generic pharmaceutical industry as it helps lower drug costs in the US. However, an order targeting pharmaceutical products at a later date cannot be ruled out, brokerage Jefferies said, according to media reports. Among other key sectors, India can gain market share in the textile industry as the import duty is much higher for India's competitors in textile exports, Vietnam and Bangladesh, analysts said.

 

Broadly, the focus of investors in the Indian market will be on domestic consumption themes and banking, financials, hotels, hospitals, aviation, telecom, defence, and some segments of fast-moving consumer goods sector, which may not take a direct hit from tariffs, are likely to be in focus, analysts said. These segments are likely to be resilient even in a weak economic market, they said.

 

EARNINGS RECOVERY?

Overall, there is weakness in the economy, and companies have also not seen a very material revival in their earnings trajectory as demand remains neutral, George Thomas, fund manager - equity at Quantum Asset Management Co., said. Recovery will be gradual, especially considering the recent updates from consumer staples and some banks, he said.

 

Earnings from information technology and banking sectors are expected to set the tone for the market, with strong results likely to boost investor sentiment this month. "We are not expecting a very big-bang results season, but at the same time, there could be sectors where we could see some amount of positive surprise also coming in," Kalpesh Parekh - head of equities - Share India Securities, said. The latest data, such as retail automobile sales in March, hints at some positive earnings growth in this sector, he said. Sectors with high dependence on exports, particularly pharmaceuticals or IT, might see lower-than-expected numbers, he said. But otherwise, the overall result season should be better than the third quarter, he said.

 

The revenue of domestic IT companies is highly linked to the macro environment in the US, and these firms are expected to keep a cautious tone for their 2025 outlook as the US outlook has turned uncertain, HSBC Research said in its earnings preview report. "4Q25 (Jan-Mar) is likely to be a weak quarter, impacted by usual seasonality and sustained weak Europe performance and now uncertain US results," HSBC Research said. Assuming the worst-case scenario, Infosys and HCL Technologies could both provide 2-5% growth guidance for 2025-26 (Apr-Mar), factoring in a heightened macro weakness in the US at the lower end of guidance, HSBC Research said.

 

Meanwhile, for the consumption-driven fast-moving consumer goods sector, rural markets continue to outpace their urban counterparts due to increased distribution of freebies and favourable sentiment due to a good monsoon, Nuvama Institutional Equities said in its earnings preview report. Rural demand is doing well anyway, whereas urban markets are experiencing pressure and are likely to remain under strain for the next two quarters, Nuvama said. Demand in the urban market is expected to start improving from the second half of FY26 onwards, Nuvama said.

 

RBI, FPIs

Besides tariffs and earnings, another key event in April is the outcome of the RBI's Monetary Policy Committee meeting. The first meeting of the central bank's rate-setting panel for FY26 is scheduled for Apr. 7-9. This is highly awaited, as any changes to interest rates or monetary policy stance could impact liquidity and borrowing costs. Market watchers are increasingly of the view that the RBI could have another rate cut and a change in monetary policy stance from 'neutral' to 'accommodative' next week. However, a 25-basis-point cut at the upcoming meeting has been largely factored in, analysts said. The committee in February had reduced the policy repo rate by 25 bps to 6.25%, marking the first rate cut in five years.

 

"A rate cut is very much on the cards; people are waiting for rate cuts to happen," Parekh of Share India Securities, said. Inflation is softening, and the economy is moving slightly slowly, so a cut in rates would be the best thing to revive the sentiment and the whole momentum of the economy, he said. "For this year, I think a 50-bps rate cut will be good enough for the economy," Parekh added. The policy statement is expected to prioritise liquidity management, as liquidity conditions have remained tight despite several recent measures by the RBI, analysts said.

 

The overall rural economy is expected to see a big push coming in, Parekh said. Improvement in retail sales by companies and a good progress in the rabi season are some indicators of a boost to the economy, specifically the tier-2 and tier-3 economies, he said. While we are still waiting for some positive signals related to the urban economy, a ramp-up in government spending is likely to help speed up the urban engine, he said. "The government capex was quite slow, quite mediocre last year, as a result, of which the urban engine was not able to perform to that extent," Parekh said.

 

Selling by foreign portfolio investors has slowed down sharply from the previous months. These investors recently turned net buyers in the Indian market after a prolonged period of heavy selling. They have been net sellers of Indian equities for six straight months till March. Last month, FPIs net sold shares worth only around INR 40 billion, sharply lower than the INR 780 billion worth of shares sold in January and INR 345 billion in February. Their total net sales till March this year have been INR 1.17 trillion. The trend has been rather choppy over the past few sessions, but there clearly seems to be some improvement in sentiment. If this recent shift in sentiment continues for a longer period, it is likely to boost sentiment, as foreign investors account for a substantial portion of India's equity market, analysts said.

 

The recent reversal in FII selling is linked to the weakening of the Indian currency, Thomas of Quantum, said. "Historically, we have seen whenever that happens, it's positive for emerging market flows," he said.

 

The rupee had been depreciating against the dollar for five consecutive months until a smart recovery in March snapped the trend. It had tumbled and hit a record low of 87.95 against the dollar in February. The Indian unit's movement will be monitored closely even though it is now back to the level of around 85 to the dollar. A strengthening rupee has its own pros and cons for the market. While it may cut the costs of importing goods and boost investor confidence, it can also make Indian exports more expensive and less competitive in the global market.

 

MARKET MOVES

Analysts are of the view that the valuations of large-cap stocks, especially banks, seem reasonable. The upside potential of large-caps, which gives an indication about the likely two-year forward returns on equity portfolios, is hovering around the long-term averages, Thomas of Quantum, said. "So, we are quite comfortable from the perspective of valuations of large-cap stocks, but the mid- and small-cap space could see some more correction to get to that reasonable level," he said.

 

"This year will be the year of fundamentals...You'll have to be very vigilant of what you're buying," Share India Securities' Parekh said. "There has been a 30-50% or even 60% amount of correction in the mid- and small-cap space." A stock-specific correction in the Nifty 50 has been in the band of 30-40%, he said. "Now, there are certain stocks where the value has started coming in, so one will have to find that value and probably find the best quality stocks in this type of market," he added.

 

Investing in mutual funds or index-based buying may be a better option for retail investors, Parekh said. "But the best option is to opt for stock-specific activity, because the top-down approach seen in the last three to four years may not work this year, he said. "One will have to find good stock ideas and stick to it, hang on with that name for one or two years and thereafter things will start giving you good returns," Parekh said. "So this year, a bottom-up approach might be better where stock-specific things will work, which can give you phenomenal returns rather than taking a call based only on the index." 

 

Following are the support and resistance levels for the Nifty 50 index for April, based on responses from 10 brokerages:

 

Brokerage firm	Support 1	Support 2	Resistance 1	Resistance 2
Axis Securities	23000	22800	23800	24200
Choice International	22800	22500	23800	24000
Globe Capital Market	22400	--	23850	24150
HDFC Securities	23000	--	23800	24150
Lakshmishree Investment and Securities	23090	22900	23000	23400
NVS Brokerage	22700	--	23800	--
Religare Broking	22800	--	24000	--
Sharekhan	23000	--	24000	--
DBS Cholamandalam	22000	--	24800	--
Choice Broking	22000	21500	24000	24500
Median	22750		24075

 

End

 

US$1 = INR 85.18

 

Edited by Tanima Banerjee

 

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