Bank, infra, smallcap funds outperform in Nifty's 10% rebound from March lows: Should investors turn aggressive?

Since hitting lows on March 4, Sensex and Nifty have recovered close to 10 percent till April 22.

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26 Aug, 2025 12:21

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World markets, including Indian equities, seem to have digested the hit from Trump’s tariff war for now, with key benchmarks Nifty and Sensex rising close to 10 percent from the low of March 4, as mutual funds chip in to support the recovery.

Indian equities had reacted negatively during February and early March to US President Trump's tariff announcements, turning significantly volatile due to uncertainty. However, as investors realize that India is unlikely to be penalized as heavily as other Asian or European peers, markets staged a recovery, partly helped by the progress over bilateral trade negotiations with the Trump administration.

Domestic macroeconomic factors too played a role in the recent rebound. "The sharp rally witnessed in stocks in the banking space, led by both the private and the PSU banks, added fuel to the fire, with Bank Nifty hitting record highs. All this bodes well for the markets, and with expectations of a normal monsoon, hopes of a sustained control on inflation is also working to the market’s advantage," said Aamar Deo Singh, Senior VP Research, Angel One.

In this recovery phase, all active equity fund segments gave decent returns, barring technology sector. Data with mutual fund research platform ACE MF showed that technology funds is the only active equity fund section to have delivered negative returns (-0.31 percent) since March 4.

On the other hand, Banking & Financial Services Funds have been the star performer with the fund category delivering an average return of 14.45 percent from March 4 to April 21.

Infra, smallcap, consumption, business cycle, large and midcap fund categories too have delivered at least 10 percent returns since March 4. Even relatively lower risk largecap funds have gained 9.52 percent on average during this period. In scheme specific action, HDFC Defence Fund gained around 22 percent during this period.

Schemes like Mirae Asset Banking and Financial Services Fund, Bank of India Small Cap Fund, Bandhan Infrastructure Fund and Baroda BNP Paribas Focused Fund notched up as much as 15 percent gains.

According to Nirav Karkera, Head of Research at Fisdom, while it may look like entire fund segments have been recovering, it is indeed the bottom of stock picking that is showing results.

“It is not as if the entire basket that has been trending up. It is very selective set of companies that are doing well,” he added. Karkera said going ahead banks, especially frontline largecap banks, look favourably placed.

“On the smallcap basket, we remain very selectively optimistic. Midcaps, again, more cautious than small caps at this point in time. There are not many opportunities visible,” he added.

With the commencement of quarterly earnings season, investors may closely track its impact on the overall sentiment. However, going by the trend, markets seem to have discounted known negatives for now.

“Overall, investors are advised to stay cautious as the volatility in the market, and fresh entry should be in tranches, rather than at one go. The silver lining being, most of the negatives have been factored in the market, and unless there is any Black Swan event, staying on the long side, but keeping an eye on valuations, should be the way forward,” Angel One’s Aamar Deo Singh said.

Ravi Kumar TV, founder of Gaining Ground Investment Services is more circumspect, and said the selloff following Trump’s tariff announcements was a glimpse of what could happen if tariffs were implemented.

“Uncertainty is still there. I wouldn't say investors should be aggressive on markets, but we should gradually invest, because nobody knows how things will pan out after the 90-day period,” Ravi Kumar said. On April 9, 2025, Trump had declared a 90-day suspension of his recently imposed reciprocal tariffs, excluding China from the pause.

Kumar believes that hybrid funds would be a better bet given the uncertainty. “Balance advantage funds is one category that can be looked at for the long term,” he said.