Number Theory: Is India's stock market winter finally over?

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After months of volatility and a persistent downward trend, the Indian markets have shown signs of recovery in recent weeks. The benchmark BSE Sensex, which had been struggling to regain momentum, has now nearly returned to its levels from the end of 2024. But does this indicate a sustained reversal, or is it just a temporary bounce? What does foreign institutional investor (FII) data suggest, and what are the key factors driving this shift? The charts below break down these

A man walks past the bull statue at BSE building in Mumbai. (PTI)

Is India's stock market winter finally over?

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  March cut the streak of non-stop monthly dips

  The BSE Sensex, which recorded consecutive monthly declines over the last three months, has closed up in March. The month-on-month percentage growth of BSE Sensex in March was 5.8%, compared to a fall of 5.6% in February. The gains mean that the benchmark index has almost negated its losses since the end of last year. Its percentage change since the end of 2024 currently stands at -0.9% — this was as low as -6.6% in the first week of March. This market upturn has primarily been driven by the financial services sector, which has been bolstered by attractive valuations and monetary easing finally coming in to play.
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  Are FIIs back?

  One of the primary reasons for the downturn in Indian markets was foreign institutional investors (FIIs) turning net sellers in the market since September. But the trend changed in March, with FIIs becoming net buyers in the month, investing ₹2,014.2 crore (net of sales) in Indian equities, according to cash markets data. A key driver of this buying spree has been short covering, as FIIs had heavily shorted stocks in previous series and are now unwinding those positions, fuelling the recent rally. Additionally, quarter-end portfolio adjustments have led to increased fund allocations to Indian equities, driven by more attractive valuations as a result of the recent correction. Meanwhile, domestic institutional investors (DIIs) bought ₹37,585.7 crore of equities net of sales. during the month. To be sure, the DII buying was lower from what it has been in the recent past. And while the market correction has brought down valuations, the Indian stock market with a PE (price-earnings) multiple of 21.6 remains relatively expensive in comparison to other emerging markets such as China (14.19) and Vietnam (13.86). In fact, the PE multiple of BSE Sensex is closer to that of the US S&P 500 (23.15).
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  Lower inflation and the rupee strengthening against the dollar helps

  Beating analysts’ expectations, India’s retail inflation rate fell to 3.61% in February, dropping below RBI’s medium-term target of 4% for the first time since August 2024. A lower inflation rate provides the central bank with greater flexibility to ease interest rates, potentially stimulating growth, and this could happen in the upcoming monetary policy committee meeting in April. Additionally, increased foreign inflows and a weaker dollar have boosted the rupee, helping it recover some of its losses against the dollar for the fiscal year. These improving economic indicators have also strengthened investor sentiment generally towards emerging markets, which have also brought gains to Indian markets.
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  But it isn’t clear if the current trend can hold

  One of the primary reasons for the market downturn since September 2024 has been muted corporate results over the last two quarters. According to data from the CMIE Prowess Database, in the second and third quarters of FY 2024-25, total consolidated net sales of the 30 BSE Sensex companies grew by only 6.7% and 8.7%, respectively. Total consolidated net sales growth was as high as 33% in the first quarter of FY 2021-22, but has since declined significantly. Meanwhile, net profit growth has remained subdued. For BSE Sensex companies, net profit from core businesses stood at 38% in the quarter ending December FY 2021-22 but dropped to 12.5% in the same quarter of FY 2024-25. Whether this trend has truly reversed will only become clear once results for the last quarter of 2024-25 are released. Moreover, markets face the immediate risk of looming US tariffs, as Donald Trump has repeatedly stated that he will announce a wide-ranging slate of reciprocal tariffs on April 2 (Wednesday). The extent of their impact on Indian markets, especially on the IT and auto sectors, remains uncertain, and investor sentiment will remain volatile until further details emerge.