Benchmark equity indices are poised to close higher for a third month despite tariff-related uncertainty, a brief border hostility with Pakistan, and a lingering concern over slowdown in US growth, even as foreign flows revived in anticipation of a sustained domestic earnings recovery, hopes of a RBI rate cut and the forecast of an above-normal monsoon this year.
The Nifty 50 index for the month of May is already higher by 1.75 percent, after a 6.3 percent rally in March and a 3.5 percent upmove in April. This will also mark a third positive monthly close for Indian equity indices after five months of decline. The run up in leading indices has been accompanied by the midcap index as well, which have had a robust recovery in the last three months.
The sustained gains after a 6 percent selloff in February have underscored that the market may have already priced in the variables, and is now looking at ongoing earnings season. The Nify 50, currently near the 24,800 level, is around 1,500 points away from its all-time high of 26,277 seen during September 2024.
Deepak Shenoy's Capitalmind in a market note for May 2025 raised the point of valuations, especially in the broader space, and said, "Despite cautionary signals from institutional investors, smallcaps continue to attract aggressive buying. The key question now is: when will earnings growth justify these lofty valuations?" Several market participants have shared a view that the valuations in the largecap space seem more reasonable now.
The selloff in equities that had been unfolding since September 2024 due to foreign outflows and then exacerbated in February 2025 had led to the Nifty's rolling SIP returns to moderate to 12.9 percent, according to the Capitalmind note. However, the moderating returns can be a healthy sign, not particularly a worry, Capitalmind added, emphasizing on the advantages of longer term investing in equities.
The Foreign Portfolio trend in equities too be turning the corner, with April seeing a net FPI inflow after three consecutive months of outflows. However, on the debt side, FPI investments saw a large outflow of Rs 25,000 crore in April, the largest in last five years.
The note also highlighted an increasing shift towards gold, especially after the 2008 Global Financial Crisis, and subsequent global shock events such as the pandemic and the Russia-Ukraine war. "Central banks, especially in emerging markets, are accumulating gold as a hedge not for returns, but for insurance. We may not be going back to a gold standard, but the yellow metal’s strategic role is back on the table," said the Capitalmind note. Gold delivered a return 41 percent in FY25 in dollar terms and 33 percent in Rupee terms. The sustained central bank purchases have fuelled a record rally in the precious metal amid a prevailing uncertainty in the global economy.
The surge in gold prices has also resulted in the loans against gold doubling in March 2025, showed Capitalmind analysis.
Another pronounced trend since last year has been a slowdown in growth of credit card issuances, which has fallen to 10.6 percent in April, reflecting an 'underlying consumption weakness' in the broader economy, said Capitalmind.
On inflation, the note made a case for easing of policy rates, with CPI inflation near its lowest level seen since July 2016, with core CPI showing signs of flattening. "Core CPI (no-food, no-fuel) which was the major inflator in last few months, is showing signs of flattening. As an indicator of how much inflation is embedded that is difficult to reverse, this is a good sign," said the Capitalmind note for May 2025.
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