Dear Investors,
The market continued to make lower bottoms in February 2025, with Nifty closing the month just a little higher than its 52-week low. Unabated FII selling (net sales of more than Rs 35,000 crores) dragged the Sensex below the psychological 75,000 level. Nifty was down nearly 6%, closing just above the 22,000 level. The broader market saw deeper cuts, particularly in the small cap segment. In the last 2 months, the midcaps have corrected by 14.4%, while small caps have entered the bear market zone after falling more than 20%. All industry sectors viz. Realty, FMCG, Consumer Durables, Automobiles, IT, Infrastructure and capital goods were in red (negative returns) for the second consecutive month in February. The sharp correction has brought valuations down across all three market capitalization segments.
Global risk sentiments were weak with the US market falling in February. Among other developed markets, Nikkei ended lower while FTSE, DAX and CAC made modest gains. Hang Seng was the standout performer in February. As far as the United States is concerned, the inflationary impact of tariffs on imports seems to be weighing on the equity markets there while US Treasury Bonds are rallying as investors seek capital safety. The major risk factor for global markets is the trade war between economies due to tariffs imposed on Canada, Mexico and China by Trump and potential retaliatory tariffs imposed by those countries on US exports.
The Reserve Bank of India slashed repo rate by 25 bps from 6.5% to 6.25% in the February Monetary Policy Committee meeting. While the central bank kept its policy stance unchanged at "neutral" it indicated that the repo rate can go down to 5.75% in CY 2025. The 10-year G-Sec yield eased by 9 bps in February. WPI inflation cooled further in January. Cooling inflation and slowing GDP growth will set the stage for more rate cuts.
The GDP growth rate in Q3 was 6.2%, which is an improvement on the GDP growth rate in Q2 (5.6%). The main risk factor for the market is the impact of the Trump Administration's trade policies - reciprocal tariffs on India's exports to the United States. As far as commodity markets are concerned, gold prices rose by 4% due to economic uncertainty caused by Trump Administration's trade policy. Silver prices remained firm, while crude oil prices declined due to economic concerns. Rupee slid to 87.47 against the dollar further contributing to FII outflows.
The sharp correction has brought valuations to reasonable levels in the last few months, but concerns linger about certain pockets of the market's due to earnings downgrades. However, through these tough times, experienced investors know that we have been through situations like this many times and the market has always recovered strongly.
Investors should focus on asset allocation with due considerations towards large caps. Large caps seem attractive from a valuation perspective with the Nifty 50 trading at PE of below 20. Investors may also continue investments in midcaps and small caps through SIPs with long investment horizon to take advantage of volatility through Rupee Cost Averaging.
Assuring you of our best services.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
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