Despite sustained selling by foreign institutional investors (FIIs), the Indian stock markets halted its three-week losing streak, riding high on the strong recovery in mid and small cap stocks. The equity benchmarks Sensex and Nifty rose nearly 2% during the week ended March 7, 2025, registering their best weekly gains in three months. The market capitalisation of the BSE-listed companies climbed by ₹13.6 lakh crore to over ₹398 lakh crore. This resilience suggests underlying strength in the market amidst worsening global trade dynamic after U.S. President Donald Trump pledged to impose tariffs on trading partners.

“Indian markets have demonstrated resilience off late despite looming trade war. While a recovery in corporate earnings could significantly improve the domestic sentiments. Investors could go overweight on large caps given stability in earnings and increasing valuation comfort,” says Vinod Nair, Head of Research, Geojit Financial Services.

On Friday, the S&P BSE Sensex ended marginally lower by 7.5 points at 74,332 in a choppy trade, snapping two sessions gaining streak. However, the NSE Nifty50 index managed to end higher for the third straight session at 22,552.50, up 7.8 points. The broader markets ended on mixed note, the Nifty Smallcap100 index settling higher by 0.67%, while the Nifty Midcap100 index closed 0.32% lower.  

Overall this week, the 30-share Sensex gained 1,134 points, or 1.55%, and the Nifty50 added 428 points, or 1.9%, during March 3-7 period. Outperforming the benchmarks, the broader market ended the week with strong gains, with BSE smallcap index rising nearly 8%. The BSE midcap index settled 4.6% higher. Among sectors, all the major sectoral indices traded in positive territory, with the defence and metal indices gaining the most. The Defence Index gained 10.50%, and the metal index rallied 9%.

Weak global cues limit market gains

On the global front, Asian markets mostly ended lower today, while European stocks were flashing in red in early trade, tracking negative closing overnight. In the overnight trade, the S&P 500 plunged 1.8%, the Nasdaq 100 slumped 2.6%, and the Dow Jones Industrial Average declined 1% as investors retreated from risk assets amid uncertainty over President Donald Trump’s tariffs.

In Asia-Pacific region, Japan’s Nikkei 225 tumbled 2.2%, Hong Kong’s Hang Sang dropped 0.57%, and China’s Shanghai Composite settled 0.25% lower. Taiwan’s Weighted stock index fell 0.6%, Singapore’s Straits Times slipped by 0.07%, South Korea’s KOSPI declined 0.5%, while Indonesia’s Jakarta Composite rose 0.27%.

"The global market is experiencing a heightened uncertainty due to US tariff impositions and counter threats from its peers. This ambiguity has led to increased risk aversion and diminished appeal of equities. Emerging markets have been particularly affected, experiencing significant outflows. Lately, S&P 500 index is showing signs of a deeper correction, reflecting concerns about the potential impact of tariffs on the U.S. economy,” says Vinod Nair of Geojit Financial Services.

Market stabilises despite FII selling

FIIs continued to exit Indian equities, offloading ₹13,466 crore in the first four days on March, after selling nearly 59,000 crore in February and a heavier ₹87,374 crore sell-off in January. This brings total FII outflows in CY25 YTD to ₹1.59 lakh crore. The primary drivers behind this exodus are rising U.S. bond yields, global economic concerns, and a shift toward safer assets. However, Domestic Institutional Investors (DIIs) have remained consistent buyers, injecting ₹1.7 lakh crore so far in CY25.

“Robust SIP participation and steady retail inflows have helped absorb some of the FII-driven pressure, though the market remains vulnerable to external shocks,” Motilal Oswal said in a report.

Market at critical juncture

The Indian equity benchmarks have registered historic correction, extending losses for five consecutive months—a trend not seen since 1996. The BSE Snesex and Nifty50 have tumbled up to 16% from their Sept-24 peaks, while midcap and small-cap indices corrected between 20%-26%.

According to latest report by Ventura, amid the ongoing stock market correction, Nifty’s forward profit-to-earnings (P/E) valuations for CY25 and CY26 have declined to multi-year lows of 18.5X and 16.2X, respectively. Historically, during major market meltdowns — such as the Global Financial Crisis (GFC) of 2008 and the Covid-led crash in March 2020—Nifty’s forward P/E dropped to 10.5X and 15X, respectively. In 2020, despite Covid being more melodramatic than the GFC, the fall was not as deep as the world was more aware of what quantitative easing (QE) was, and its effect, than in 2008.

Motilal Oswal Financial Services in a report said that near-term volatility is likely to persist amid continued foreign outflows and slowing earnings growth. However, historical data suggests that markets tend to stabilise post such corrective phases. “Investors should focus on high-quality, fundamentally strong stocks, particularly in the large-cap space, to manage the ongoing turbulence. While midcap and smallcap valuations have moderated, they still trade at a premium, warranting a cautious stance,” the report noted.

From a technical viewpoint, the Nifty index is near a crucial support zone around the 89-week exponential moving average (WEMA), historically a strong price reversal area, highlighted during significant rallies in the past. “This support zone ranges from 22000–21800, where previous buying interest was noted,” says Osho Krishan, Sr. Analyst - Technical & Derivative Research, Angel One Ltd.

During the week, the Nifty and Sensex slipped below the crucial level of 22,000 and 72800, respectively. However, it bounced back sharply. “Technically, it has formed a reversal formation on both daily and weekly charts, supporting a further uptrend from the current levels. Additionally, a long bullish candle on the weekly charts and an uptrend continuation formation on intraday charts also support the uptrend,” says Amol Athawale, VP-Technical Research, Kotak Securities.

Athawale opines that 22,400/74000 and 22,300/73700 would be key support zones for positional traders. If the market succeeds in trading above these levels, it could bounce back to the 20-day SMA or 22,750/75200. Further upside may continue, potentially lifting the indices up to 22,900/75700. On the flip side, if the market falls below 22,300/73700, the sentiment could change, and traders may prefer to exit their long positions, he explained.

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