The domestic equity benchmark indices, the Sensex and the Nifty50, posted their highest monthly gains among the world’s 10 largest equity markets in March, aided by improved valuations, a dovish U.S. Federal Reserve, recovery in the rupee, and value buying in beaten-down mid- and small-cap stocks.

The 30-share Sensex rallied over 4,400 points, or 6%, month-to-date (MTD) to close at 77,606 as of March 27, 2025, with its total market cap growing by ₹31 lakh crore to ₹415.55 lakh crore. In a similar trend, the Nifty50 bounced back 1,467 points, or 6.6%, to settle at 23,592 on the last day of March futures and options (F&O) series expiry.

Outperforming the benchmark indices, mid- and small-cap stocks witnessed a strong rally in March, with the Nifty Midcap 150 and the Nifty Smallcap 250 indices surging 8% and 10%, respectively.

The recent rally is fuelled by a combination of fundamentals and sentiment, says Shrikant Chouhan, head of equity research at Kotak Securities. “We can only speculate on the reasons for this odd rally — a few investors found value in BFSI stocks, some may have rediscovered value in ‘narrative’ stocks, others may have taken solace from reducing FPI selling in the past month and inflows in the past week,” he says.

In February, the Nifty50 lost 1,357 points, or 5.9%, and the Sensex plunged 4,300 points, or 5.5%, eroding investors’ wealth by ₹40 lakh crore as the market faced headwinds amid concerns over stretched valuations, relentless selling by foreign institutional investors (FIIs), and uncertainty related to U.S. tariffs. The Nifty Midcap 150 and Nifty Smallcap 250 indices tumbled 10.6% and 12.7%, respectively.

Between October and February, the equity benchmarks witnessed the steepest fall in any comparable period, wiping out a staggering ₹94 lakh crore of investor wealth as the Sensex and Nifty plummeted up to 16% from their lifetime highs touched in September 2024.

Is the worst behind us?

If market indicators are to be believed, Indian equities may keep their uptrend intact unless there is additional bad news. The odds are good that the stock market has finally bottomed out, say analysts.

The rupee has erased nearly all of its losses so far this year and has risen 2% in March, emerging as one of Asia’s best-performing currencies, driven by renewed foreign fund inflows ($1.7 billion in the third week of March). Foreign portfolio investors (FPIs) withdrew a net amount of $27.2 billion between October 2024 and March 25, 2025 — the highest in such a short span — reveals NSE’s March market pulse report. Meanwhile, domestic institutional investors (DIIs) remained consistent buyers for the 20th straight month in March, injecting ₹3.7 lakh crore since October 2024, bringing total net DII inflows for FY25 to ₹6 lakh crore.

India’s resilient macro conditions are also adding optimism to the market, with Q3 GDP rebounding to 6.2% and full-year growth revised to 6.5%. GST collection data, along with other high-frequency indicators like car sales and PMI, also indicate that the momentum will continue in FY26. Plus, retail inflation eased to a seven-month low of 3.6% YoY in February on softer food prices, igniting hopes for rate cuts in FY26.

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