At the start of the month, Indian equity market saw some positive movement amid value buying in beaten-down mid and small cap stocks, triggered by strong domestic macroeconomic data, including robust Q3 GDP numbers, lower inflation, improved industrial production, and stable crude oil prices. The Indian stock market halted its three-week losing streak during the week ended March 7, 2025, with benchmarks Sensex and Nifty rising nearly 2%.
However, the market lost momentum in the second week, with the benchmark indices settling 0.7% lower as investors turned cautious amid growing concerns over a potential global trade war, driven by U.S. President Donald Trump’s aggressive foreign import tariffs and reactions from other nations. Adding to the woes, sustained selling by foreign institutional investors (FIIs) further dampened hopes of a sustained recovery.
In the last week, the benchmark indices witnessed range-bound activity in holiday-thinned trading, with the NSE Nifty ending 0.69% lower at 22,397, while the Sensex fell 500 points to 73,829 mark. On the sectoral front, most indices ended in the red, with IT and capital market indices emerging as the top laggards, losing over 4%, while some buying was seen in selective financial and pharma stocks. The broader market resumed sell-off, with mid and small-cap indices falling between 2.15% and 4%.
Key events to watch next week:
U.S. Fed Policy
The upcoming week is going to be critical for the market as the U.S. Federal Reserve’s monetary policy meeting is scheduled on March 19. The U.S. central bank is widely expected to hold interest rates steady on Wednesday, despite favourable trend in the inflation data, due to President Donald Trump’s back-and-forth on tariffs. There is concern in the market that ongoing trade tensions could impact global economic growth and push inflation up.
“While recent inflation data suggests a favorable trend, the possibility of an interest rate cut remains uncertain due to ongoing trade tensions however their commentary would be crucial,” says Ajit Mishra – SVP, Research, Religare Broking Ltd.
FII activity
Traders will close a close eye on foreign institutional investors (FII) trend as selling pressure from foreign investors accelerated again after a small pause. So far this month, FIIs sold equity worth ₹30,015 crore till February 13, taking the total selling in the calendar year 2025 to ₹1,42,616 crore. However, in the debt category, FIIs turned net buyers in March so far, with the total buying (general category plus VRR) of ₹7,029 crore.
The FPI outflows from India have been mainly going into Chinese stocks, which have been outperforming other markets in 2025, says V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. “The recent decline in the dollar index will limit the fund flows to the US. However, the heightened uncertainty triggered by the trade war between the US and other nations is likely to push more money into safe asset classes like gold and dollar.”
Trump trade policies
The market participant is increasingly worried about an economic slowdown, which has been exacerbated by Trump’s tariff policies. Last week, Wall Street witnessed strong selling after President Donald Trump said the U.S. economy would see short-term turbulence from his trade and fiscal agenda and refused to rule out a recession.
Investor sentiment has taken a hit as experts believe that escalating trade war could increase inflation and slow global economic growth. According to Royal bank of Canada, U.S. inflation could increase by 50 basis points by year-end if tariffs are enforced beyond 3 months, expecting inflation to remain over 3%. The rise in inflation could delay rate cut by the Federal Reserve.
Key strategy for investors
Given the ongoing market consolidation, traders are advised to focus on option strategies in index until a clear breakout emerges. At the same time, stock-specific approach remains prudent, with a preference for financials, energy, and metals on the long side, while IT and auto sectors may continue to underperform, said Ajit Mishra of Religare Broking.
“Additionally, caution is warranted in broader markets, as heightened volatility could lead to further underperformance. Investors are advised to avoid aggressive positioning in mid and small-cap stocks,” he added.
Analysts at SBI Securities suggested investors to remain cautiously optimistic on market due to the recent recovery as well as valuation easing. “Investors are recommended to stick to quality businesses with supportive valuations for medium to long term investment horizon.”
Technical Outlook
Nifty remains in a consolidation phase, trading within a tight range of 22,250 to 22,650. “A decisive breakout could drive the index towards 23,100 or higher, while a breakdown may lead to a retest of 21,800,” says Ajit Mishra.
Bajaj Broking in a report said that Nifty may sustain above 22,200-22,300 level, which is crucial for continuation of the pullback towards 22,700 and 23,000 levels in the upcoming week. A breach below 22,200 will lead to extension of decline towards key short term support area of 22,000-21,700.
Amol Athawale, VP-technical Research, Kotak Securities, believes that the current market texture is non-directional, and traders may be awaiting a breakout in either direction. “For the bulls, the key breakout zone for Nifty and Sensex are at 22,650 and 74,900, respectively. A dismissal of the 22,650/74,900 breakout could push the market towards 22,800-22,900/75,500-75,800. Conversely, if the market falls below 22,300/73,300, selling pressure is likely to accelerate. Below this level, the market could retest levels of 22,100-22,000/72,700-72,400.”