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The new fiscal year has started with a broad range of twists and turns in the global equity markets. The imposition of trade tariffs by the US government on almost all its trading partners has created flux in the global economy, with most market participants believing that the tariffs will lead to a global recession. Furthermore, the US trade war with China has been critical, where both parties have indulged in persistent tariffs, which are damaging to the economies. Although the challenges for the global economy have increased manifold, Indian equity markets have outperformed the global markets by a significant margin. There are many structural reasons for the strong performance, and we will discuss them in the subsequent sections.

The month of March was a good month for Indian equities as the narrow index NIFTY 50 rallied by 6% while the broader market index NIFTY 500 rallied by 7%. The small and midcap indices rallied by 9% and 8%, respectively, after being battered badly in the months of January and February. The Indian markets rallied during the month; however, major global indices like the S&P 500, Dow Jones, and FTSE 100 saw negative returns over the same period. While the Indian equities performed well, we are happy to note that all our flagship strategies, Pure Contra, Pure Growth and Kaizen, outperformed the market in the month of March. We are also excited to share that all our flagship strategies have demonstrated healthy outperformance during the FY25. Pure Growth outperformance picked up during the tougher market conditions, and the strategy moved up to the top quartile by the end of the fiscal. At the same time, Kaizen retained its top-quartile performance through the year. Pure Contra delivered top-quartile performance for 10 of the 12 months during the fiscal year and moved down only slightly to the second quartile by the end of the year. Overall, the strategies have delivered an excellent performance in line with the strategy’s objectives.

Q4FY25 Earnings Season Likely to be Constructive

Top banks, including ICICI Bank and HDFC Bank, have declared their results, which stand better than expectations, and operating parameters have shown improvement. ICICI Bank results, in particular, were top notch, with sequential improvement in Net Interest Margins, which was a significant positive. The reported asset quality for these top two private banks was stable, thus ensuring that multiples are likely to be sustained over the medium to long term. Banking stocks took a beating after Q2 and Q3 results because of slower deposit growth, but palpable improvements have been visible in the current quarter, which is a significant positive. Banking stocks traded at relatively inexpensive valuations, and decent results helped the overall market sentiment because of the substantial weight in the sector

IT majors also reported numbers. However, they have been disappointing for Infosys and TCS. While this has been disappointing, we believe the significant correction in stock prices has captured the business weakness. The sector appears to have limited downside from hereon; however, growth challenges persist. For instance, Infosys has guided only 0-3% growth for FY26, indicating sluggishness. This makes significant allocation to the sector challenging.

The performance of the Capital Goods sector will also be critical, given the sequential pickup in capex activity. The implications of a pick-up in economic activity due to the Kumbh Mela should also be interesting. The Retail sector should report healthier numbers during the quarter. Overall, sequential improvement is expected, which should help the market moving forward.

The Way Ahead: FY26 Will Be Better Than FY25

Even as global challenges persist, India has emerged as a bright spot in the global equity markets. The country has taken a proactive stance, staying ahead of many others by initiating discussions with the US government to explore possible solutions to ongoing trade challenges. FY25 had multiple challenges emanating from sluggish Q1 and Q2, driven by the election effect. However, from an economic perspective, the FY26 growth rate should be better than that of FY25. Government spending picked up steam by the end of Q3FY25 and has gained traction in Q4FY25 as well. Also, the Reserve Bank of India has pivoted and is now focusing on improving liquidity to spur growth. Thus, corporate earnings will likely gain traction in FY26, resulting in double-digit returns for Indian equities.

Conclusion

Indian equities have shown resilience in a challenging global environment. FY26 has had a promising start with operating performance improving in the BFSI sector which is a significant positive. Q4FY25 GDP growth could surprise positively which is likely to set the tone for a good FY26. Overall, we are at a juncture where investing at current levels will create solid value in the years to come.

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