Market Update

The domestic equity markets rebounded sharply in March after the US government announced a pause in the implementation of tariffs, especially on Canada and Mexico. Both the benchmark indices, the Sensex and the Nifty 50, recovered quite a bit of lost ground, rallying around 6% each for the month. Favourable domestic macros in terms of declining inflation and good PMI also played out in favour of the bulls. The rally in March was led by Power Utilities, Infrastructure and Capital goods, which were clear outperformers while the laggards included the likes of Technology, Consumer Durables and Autos. This rally was largely supported by domestic buying as FIIs still remained net sellers to the tune of USD 401 mn.

Composite PMI rose to 59.5 in March 2025, surpassing the flash estimate of 58.6 and improving from 58.8 in the previous month. This marked the highest level since August, with factory activity growing the most in 20 months and the service economy extending its robust expansion. For both new business and output, expansion rates were stronger in the manufacturing sector, which experienced a notable pick-up in growth. Although service providers faced a slowdown, they still recorded substantial increases. Meanwhile, employment rose at its slowest pace in nearly a year, as job creation eased among goods producers and service companies.

Headline CPI inflation in Mar slowed down further to 3.3% YoY as against 3.6% YoY in Feb, led primarily by the cooling off in food inflation. Food & beverage prices corrected by -71bps MoM vs. -164bps dip in the previous month. Vegetable prices fell for the fifth successive month; down by -6% vs. -11% in the last month. Eggs/pulses price also eased by -5%/-3% each. Core CPI fell marginally to 4.1% vs. 4.2% in the last month while fuel & light and clothing price saw 0.1% rise each. WPI inflation continued to ease in March, dropping to 2.05% YoY (from 2.38% in Feb), aided by a broad-based decline in food and fuel prices, while manufactured products saw a mild uptick.

The capital market rally was visible on the fixed income front too as yields softened considerably in view of the RBI’s latest liquidity measures to purchase government securities through Open Market Operations boosted sentiment. Gains were extended following a lower-than-expected domestic inflation print for Feb 2025. Yields fell further following the U.S. Federal Reserve's decision to maintain current interest rates in its Mar 2025 monetary policy meeting and signalled the possibility of two 25 bps reductions later this year. Yield on the 10-year benchmark paper (6.79% GS 2034) softened 14 bps to close at 6.58%, compared with the previous month’s close of 6.72%. Corporate bond spreads largely contracted across maturities compared to the previous month.

The initial part of April witnessed a volatile start to the domestic equity markets as the US administration amped up the tariff wars, especially with China. However, with the announcement of a 90 day cooling off period before the implementation, which would essentially be utilized for more trade negotiations, the markets seemed to have found some succour and have rallied strongly towards the mid of the month. The RBI MPC also announced a 25 bps repo rate cut along with a change in stance from neutral to accommodative. The corporate earnings season has started off with a couple of big technology players missing their marks. The quarter does not seem to be very promising from an earnings growth point of view.

Regards,

Investment team

Pramerica Life Insurance