The NSE 500 index saw its market capitalisation rise by 15 percent in a broad-based recovery between low of March and May 2025, after it fell 19 percent between September 2024 and March 2025, a note by Motilal Oswal has said, a trend overlapping with the return of foreign inflows into equities for a third month.
While the technology sector remained flat in this latest rebound from March lows, the market capitalisation of spaces like capital goods, infrastructure and fertilizers rose the most in these three months. Infact, the market capitalisation of Defense and Railway sectors saw very sizeable gains in the past two months following a decline in March 2025.
The m-cap of defense-related shares too hit an all-time high last month at a CAGR of 55% between FY19 and May 2025, at an aggregate net profit growth of 23 percent CAGR. The market cap of India's Railway shares too rebounded from lows of March, recording a CAGR of 46 percent between FY19 and May 2025 with aggregate PAT rising at a CAGR of 15 percent.
May was the third consecutive of positive foreign inflow into equities at $1.7 billion, said the MOSL note, with DIIs investing in shares worth $7.9 billion during May, which was their 22nd month of net inflows, and the third-highest monthly buy figure ever. This revival of sentiment of FIIs in the past two-three months has been a key factor supporting the rally in the broader markets. However, on a YTD basis FIIs are still net sellers of about $11 billion in equities, while DIIs invested around $33 billion.
These inflows have come even as equity market valuations have remained above their long-term averages, with Nifty 50’s one-year forward P/E at 21.2x, which is about 3 percent above its long-period average (LPA) of 20.7x. This gap is wider in broader markets, with the Nifty Midcap 100 and Nifty Smallcap 100 indices trading at 29.3x and 25.8x, respectively, representing a premium of around 30 percent and 60 percent each to their respective LPAs, said MOSL. The valuations have been trading below the 10-year average for automobiles, while they have stayed above the 10-year average for private lenders, consumption, capital goods, healthcare, technology, metals and oil & gas, the note added.
One factor supporting the case of the return of foreign investors has been the broad earnings improvement, with the MOFSL earnings universe rising by 10% on year compared to its own estimate of a mere 2 percent growth in 4QFY25, showcasing a wide outperformance. The large and midcap earnings for MOFSL universe of companies rose 10 percent and 19 percent respectively in the March quarter, while for smallcap, the earnings fell 16 percent on year.
The recent rally has also come as market participants digest a forgettable year of earnings, with the FY25 Nifty earnings falling well-below expectations that were set at the start of the year. The Nifty EPS for FY25 stood at Rs 1,013, compared to the April 2024 estimate of Rs 1,132, which is a drop of 11 percent on year. This has been the first double-digit downgrade in last five years.
Despite the positive returns of the past three months, on the YTD basis, Nifty 50 is lagging several global indices in dollar terms, higher by only 5 percent as compared to a 23 percent gain for Brazil, and 20 percent rise this year for South Korea.
In the month of May, 146 companies on the BSE 200 index ended higher, which is about 73 percent of the index, with Suzlon Energy, Star Health and Solar Industries leading the pack of gainers for the month. On a YTD basis, about 97 of the BSE 200 constituents are trading higher.
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