Trade Wars – Market stability post bilateral

deals
April 2025
Equity View
Asset Sub- Closing InCred
Index Key points
Class category Level Outlook
• The Nifty, after five consecutive months of decline, bounced back smartly in Mar’25 with a 6.3% MoM gain –
the highest since Jul’24.
• FIIs recorded marginal inflows in Mar’25 after two consecutive months of outflows.
• Liberation Day announcement by the US marks a seismic change in global order – era of rule-based
globalization and free trade seems to be challenged.
• Markets are hurting because of uncertainty created by US tariffs and retaliation by affected countries like
China, Canada and the EU. This will weigh on global trade, economies and markets
• With US stocks in a slide, there are voices of concern that can be heard. Major market downturns have often
presaged a US recession, and there is an increased probability of the same in the past few days.
Neutral
• While many countries might rush to negotiate trade deals, the effect of tariffs may wear off in months leading
Large Cap Nifty 50 22,125 (Since: Jun-24
to a sideways market at best.
Level: 23,519)
• Price correction on equity indices (Nifty), has brought headline valuations closer to historical averages. If once
watches six sigma events like 2008 GFC or 2020 Covid, sharper drop in P/E levels can’t be ruled out as the
Indian
market tries to factor in potential shocks from macro disruptions
Equities
• Also, expectations for FY26 corporate earnings (15% for the Nifty-50) are still elevated. In our opinion, given the
underlying macro-micro backdrop earnings are ripe for further downgrades.
• We remain watchful of the situation that’s unfolding in global markets. We believe the Nifty could be
rangebound in the next 6 months with a slow recovery as global calm and stability might not return anytime
soon.
• We maintain a Neutral stance towards equities in view of heightened uncertainties and potential slowdown.
• During the last 5 years (until 2024), midcaps and smallcaps have outperformed largecaps.
• In Mar-25, Midcap 150 and Smallcap 250 indices gained 7.5% and 8.3% respectively.
Underweight • Since 27th Sept-24, , the median mid-cap and median small-cap has lost 15% and 18% respectively.
Mid and BSE
38,592 (Since: Feb-24 • Despite the sharp sell-off, SMID continues to trade at ~25% premium to its own long period averages. We
Small Cap Midcap
Level: 41,531) suggest booking profits in this segment, given the potential for additional downside.
• For those under allocated, consider phased investments into mid and small caps over a 6-9 months period,
while maintaining tactical allocation limits—20% for mid caps and 10% for small caps.
Source: Prices as of 31st Mar28th Feb 2025; Bloomberg
Fixed Income View

• The RBI cut rates by 25bps for the second time in a row, in lines with market expectations. Also the
10-year G- policy stance was changed from neutral to accommodative, entailing easy policy that is geared
G-Sec 6.50%
Sec
towards stimulating the economy through softer interest rates.
• With Repo Rate at 6% and view on durable liquidity to be positive, the recent transmission into
market interest rates is expected to sustain.
• While debate around the terminal rate may persist amid shifting views on further easing, we expect
the overall magnitude of cuts to remain modest.
AAA
3y AAA 7.10% • The Budget outlines continued fiscal consolidation, targeting a 4.4% deficit-to-GDP by FY26. While
Corporate
minor slippages warrant monitoring, strong demand and stable-to-negative net government bond
Positive on supply create a supportive backdrop for bonds over the next 12–18 months.
medium
Fixed • As external volatility reshapes market expectations, a dynamic and continuously reassessed
duration and
Income
high yield approach to duration will be essential.
strategies
• Today's yield landscape offers compelling, lower-risk relative value plays through select funds—
AA well-suited to investor appetite across both risk and duration.
3y AA 7.93%
Corporate
• Positioning into duration-driven dynamic bond funds and also allocating to credit strategies can
unlock attractive opportunities for investors.
• Upto 50% of fixed income to be allocated towards medium – long duration strategies.
• Further, allocation of upto 35% of fixed income portfolio is suggested towards high yielding assets
(bonds /funds)
A
3y A 9.35% • Balance 15% of the fixed income portfolio can be allocated towards accrual / shorter term strategies
Corporate
– upcoming strategies such as income plus category of funds can be encouraged

Source: Bloomberg; Bond yields as on 3rd Apr 2025

Other Asset Class
Sub- Closing InCred
Asset Class Benchmark Key points
category level Outlook
US S&P 500 5,612 • While allocation to global markets offers diversified growth story with preference across world,
Global Europe MSCI Europe 179 transformational technology, biotechnology etc. (themes that are not available in India), current
Negative
Equities uncertainty that emanates from global macro and policy transformation might take time to settle down
Shanghai and hence would wait for atleast 6 months before re-considering this segment of the market.
China 3,336
Composite
• Gold prices have seen a record-breaking year in terms of returns as the prices have hit new highs in 2024.
• Traditionally, a weaker USD and lower U.S. rates increase the appeal of gold. But a significant decoupling
started to emerge in early 2022 and gold’s relationship with U.S. real yields has broken down even
Precious Gold LBMA USD 3,115 further this year.
• As global concerns about trade tensions escalate—especially after the United States imposed tariffs on
Metals
Positive Canada, Mexico, and China, with the European Union on the way—investors are turning to the precious
(Gold / metal as a hedge against inflation and economic uncertainty.
Silver) Silver LBMA USD 29.8 • A general aversion to short bullion financially, despite the outsized rally, underscores gold’s structurally
bullish drivers outside of U.S. real yields. Geopolitical uncertainty, Central bank buying, monetary policy
changes and ETF flows to support gold prices / demand in 2025 as well.
• The structural bull case for gold remains intact, even as prices have risen sharply.
• Price slump in crude oil that has begun recently is expected to extend as fears about US led global
recession intensify which could lead to demand uncertainty.
• Additionally, a planned production increase by OPEC+ starting May is also contributing to selling pressure
on oil. It announced it would increase the oil supply by 411k b/d in May.
• While OPEC+ said the supply increase is due to a more positive outlook, it seems there is more behind
Brent Crude
Commodities Crude 74.7 Negative this move.
(US$/bbl) • US President Trump is taking a more hawkish view towards Iran and Venezuela with stricter sanctions.
OPEC+ might see this as an opportunity to boost supply, especially after Trump announced secondary
tariffs for buyers of Venezuelan oil and threatened similar measures for buyers of Iranian and,
potentially, Russian oil.
• Secondly, it is no secret that Trump wants lower oil prices and has pressured the Saudis to boost supply.
Source: Prices as of Source: Prices as of 31st Mar 2025; Bloomberg
Indian Equities outperforms most of the global markets in Mar’25
Equities bounced back after a sell-off for 5 consecutive months; SMID outperformed; Crude was stable; EU / China underperformed
Current
As of 31st Mar 2025 1M 3M 6M 1Y CY24 CY23 CY22 CY21 CY20 CY19
Level
EM and DM
MSCI Emerging Markets 1,101 0.4% 2.4% -5.9% 5.6% 5.1% 7.0% -16.9% -4.6% 15.8% 15.4%
MSCI World Index -4.6% -2.1% -2.5% 5.6% 17.0% 21.8% -1.9% 20.1% 14.1% 25.2%
(Developed equities) 3,629
Key Equity Indices
S&P 500 5,612 -5.8% -4.6% -2.6% 6.8% 23.3% 24.2% 0.1% 26.9% 16.3% 28.9%
MSCI Europe 179 -4.4% 5.3% 2.1% 4.1% 5.8% 12.7% -0.6% 22.4% -5.4% 22.2%
Nikkei 35,618 -4.1% -10.7% -6.1% -11.8% 19.2% 28.2% 16.2% 4.9% 16.0% 18.2%
Shanghai Composite 3,336 0.4% -0.5% 0.0% 9.7% 12.7% -3.7% -18.3% 4.8% 13.9% 22.3%
Nifty 23,519 6.3% -0.5% -8.9% 5.3% 8.8% 20.0% 25.2% 24.1% 14.9% 12.0%
BSE MidCap 41,531 7.6% -10.6% -15.8% 5.6% 26.1% 45.5% 47.5% 39.2% 19.9% -3.0%
BSE SmallCap 46,638 8.3% -15.5% -18.4% 8.0% 29.3% 47.5% 44.9% 62.8% 32.1% -6.8%
Other Assets (levels)
Brent Crude 74.7 73.2 74.6 71.8 87.5 0.0 85.9 77.8 51.8 66.0 53.8
Gold 3,115 9.9% 19.4% 18.4% 40.7% 25.5% 14.6% 15.1% -4.3% 24.6% 18.4%
Dollar index 104.2 107.6 108.5 100.8 104.5 0.1 103.5 95.7 89.9 96.4 96.2
Credit/ yields (%)
India 10 year G-sec 6.58 6.73 6.76 6.75 7.06 -0.06 7.33 6.45 5.87 6.56 7.37
US 10 year G-sec 4.21 4.21 4.57 3.78 4.20 0.18 3.87 1.51 0.91 1.92 2.68
Germany 10 year G-sec 2.74 2.41 2.37 2.12 2.30 0.17 2.57 -0.18 -0.57 -0.19 0.24
Source: Bloomberg
Most sectors rebound from their Feb’25 lows; IT declines
Small Caps outperformed Large & Mid Caps in Mar-25, driven by strong gains in asset-heavy sectors.
As of 31st Mar 2025 1M 3M 1Y CY24 CY23 CY22 CY21 CY20 CY19
Overall Markets
✔ Broader markets outperformed Large Caps Nifty 50 in
Nifty 6.3% -0.5% 5.3% 8.8% 20.0% 25.2% 24.1% 14.9% 12.0% Mar-25 after an underperformance in Feb-25 & Jan-
Nifty Equal weight 6.1% -0.5% 3.8% 9.7% 29.8% 38.0% 32.6% 17.6% 2.7%
BSE Mid cap 7.6% -10.6% 5.6% 26.1% 45.5% 47.5% 39.2% 19.9% -3.0% 25.
BSE Small Cap 8.3% -15.5% 8.0% 29.3% 47.5% 44.9% 62.8% 32.1% -6.8%
Styles
Nifty 200 Quality 30 5.7% -7.8% 3.2% 12.7% 29.9% 21.7% nm nm nm ✔ Growth outperformed Value yet again in Mar-25 –
MSCI India Value 5.7% -2.8% 1.9% 12.1% 25.9% 24.1% 31.5% 23.7% 9.6%
MSCI India Growth 8.0% -3.8% 6.4% 16.5% 14.8% 20.0% 22.7% 10.1% 7.3% early indicators of shift towards growth / quality seems
Financials
NSE Financials 8.9% 6.6% 19.5% 9.4% 13.2% 24.0% 14.0% 4.5% 25.6% to be back (better earnings growth visibility)
Nifty Bank 6.7% 1.4% 9.4% 5.3% 12.3% 36.1% 13.5% -2.8% 18.4%
Nifty Private Bank 6.2% 3.8% 9.2% -0.4% 13.8% 37.9% 4.6% -2.9% 16.2%
Nifty PSU Banks 10.8% -4.2% -10.6% 14.5% 32.3% 125.8% 44.4% -30.6% -18.3% ✔ Utilities, Capital Goods and Oil & Gas were the best
Asset heavy sectors
BSE Oil and Gas 11.3% -3.6% -9.1% 13.2% 12.8% 31.5% 24.3% -4.4% 7.2% performing sectors in Mar-25.
BSE Capital Goods 13.5% -7.5% 2.9% 21.8% 66.9% 93.5% 53.4% 10.6% -10.0%
BSE Utilities 15.1% -2.8% -3.4% 13.0% 32.6% 62.0% 64.4% -0.4% -7.3%
NSE Infrastructure 10.3% -0.1% 1.5% 15.9% 39.1% 47.5% 35.6% 12.2% 2.5% ✔ IT, Auto and FMCG were the worst performing sectors
Services oriented sectors
NSE IT -1.2% -14.9% 5.7% 22.0% 24.1% -8.2% 59.6% 54.9% 8.4% in Mar-25.
BSE Telecom 6.8% -7.3% 5.8% 25.8% 30.8% 24.9% 43.0% 13.6% 12.9%
NSE Financial services 8.9% 6.6% 19.5% 9.4% 13.2% 24.0% 14.0% 4.5% 25.6%
Others
NSE Media 6.4% -18.8% -17.9% -23.9% 19.9% 7.6% 34.6% -8.6% -29.7%
NSE Auto 3.9% -6.7% -0.6% 22.6% 47.6% 70.2% 19.0% 11.5% -10.7%
NSE FMCG 5.7% -5.7% -0.7% -0.3% 29.0% 51.6% 10.0% 13.5% -1.3%
NSE Pharma Index 6.7% -9.7% 11.3% 39.1% 33.6% 18.3% 10.1% 60.6% -9.3%
NSE Real Estate 6.7% -19.1% -5.5% 34.4% 81.3% 61.7% 54.3% 5.1% 28.5% Source: Bloomberg
 Global Macro &
Markets

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Central Bank policy response to Tariffs needs to be watched
Current Policy 10Y bond
Quarterly GDP Inflation Comments
Rate yield
Dec-24 Feb-25 Jan-25/Feb-25 4-Apr-25
SA qoq (%) yoy (%)
• Given the tariff related uncertainty, many market participants are expecting the US economy
to fall into recession this year.
• Most traders have boosted expectations for the Fed to cut interest rates this year by 125bps
equivalent to five quarter-point moves, basis overnight interest rate swaps.
US 2.3% 2.8% 4.25% - 4.50% 3.94% • However, Fed Chair Jerome Powell made clear recently that he would not rush to ease rates
even as turmoil erupts across markets. In a speech, he stressed that still-elevated inflation
means policymakers will need to act with caution given the temporary price boost from tariffs.
• Hence, whether the Fed follow through with market expectation or stay more measured while
reducing rates further would be a development over the next few months.

• In March 2025, the ECB lowered its three key interest rates by 25 basis points.
• The ECB's decision to cut rates was based on its assessment of inflation, economic growth, and
monetary policy transmission.
Europe 0.2% 2.4% 2.50% 2.52% • The ECB reiterated that the disinflation process was “well on track,” but noted that domestic
inflation remained “high.”
• However, ECB's outlook is clouded by uncertainty due to geopolitical tensions,
macroeconomic fragmentation, and global trade frictions.
• At its meeting in March, the Bank of Japan (BoJ) Policy Board kept rates steady, and warned of
heightening global economic uncertainty, suggesting the timing of further rate hikes will
depend largely on the fallout from potentially higher U.S. tariffs.
• Governor Ueda stated that Japan's wage and price conditions are on track, possibly stronger
Japan 2.8% 3.7% 0.50% 1.16%
than expected, but the uncertain U.S. and global outlook made it difficult to assess the
potential impact on Japan's economy.
• He also signaled readiness to raise rates further if economic and price developments move in
line with projections.
Source: Bloomberg
US has unveiled reciprocal tariffs
2025: Trade war in the making. Is US sleepwalking into another recession?

• Nearly a century ago, the Smoot-

Hawley Tariff Act of 1930 set off a
devastating chain reaction,
worsening the Great Depression
and dismantling global trade

• Fast forward 2025, as Donald

Trump signals a fresh wave of
tariffs on imports, the parallels are
uncanny.

In the high-stakes game of global trade, history has a way of whispering warnings.
But will anyone listen?
2025: Trade war in the making. Is US sleepwalking into another recession?
Ghosts of 1930: When Protectionism backfired 2025: Recipe for Trade war?
Market / Economic American Response & Market / Economic American Response &
Scenario Repercussions Scenario Probable Repercussions

• Markets at peak • America raised tariffs on • Markets at peak • America raised tariffs with
• World reeling from over 20,000 goods • Global economy is on base 10% increase and
WW – I • Smooth – Hawley Tariff Act shaky ground – additional increases
became law in 1930 recovering from country by country
• Struggling to rebuild
• Set-off chain reaction pandemic • Multiple countries
• Shifting geo-political (including China, Canada)
landscape worsened Great • Geopolitical tensions
Depression countered with own tariffs
• American farmers • Fragment supply
• Dismantling of global trade chains • GDP: Could shave off
/industrial lobbies $500bn of GDP over 4yrs
exerting pressure to • 25 countries (including • Inflation has been high,
“protect American Canada/ UK, France) technological • Per capita: Could reduce by
jobs” countered with own tariffs disruption underway $1700 p.a.

• Unemployment :23% • This has strained global • IMF forecasts annual 0.5%
co-operation global GDP reduction
• GDP: shrank 30% disproportionately
American • Exports: 60% collapse • Trump is echoing harming EMs
populist appeal:
Economy went into • Global trade vol dropped protect American • Europe will recalibrate its
66% workers, punish foreign position with US
a prolonged • Tariff wars strangled global producers, revive local
liquidity manufacturing
RECESSION
• Ignited currency wars
Source: Britannica, Aequitas
 India Macro Outlook

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High frequency indicators suggest economy showing tapering growth
GST collections at ₹1.96 trn with 10% yoy growth; Auto sales rose in Mar’25; Credit growth momentum continues to remain steady; Core
industries output growth remains positive but hints of slowdown

As on Unit Latest Last One year back

O/s non-food Credit Growth Feb-25 yoy (%) 12.0% 12.5% 16.6%
Consumption
Auto Volumes
PV Mar-25 Units Sold 3,50,603 3,03,398 3,29,946
2W Mar-25 Units Sold 15,08,232 13,53,280 15,35,398
Industries
Power Consumption Mar-25 yoy (%) 6.9% 3.3% 8.5%
Manufacturing PMI Mar-25 X 58.1 56.3 59.1
Core Industries output Feb-25 yoy (%) 2.9% 5.1% 7.1%
Overall, Economy
GST Collection Mar-25 Rs Trn 1.96 1.84 1.78

✔ In absolute terms, GST collections rose. The growth rate of GST collections has dropped and remains consistently below estimated
nominal GDP growth of 10.5% for FY25 – GST collections have on an average grown at 9.5% this FY.
✔ Manufacturing PMI remains in expansionary phase
Source: Bloomberg, FADA, Company Data
Real GDP growth improves in Q3FY25
As of Unit Latest Last 1 year back
GDP quarterly Dec-24 yoy (%) 6.20% 5.60% 9.50%
GDP Annual FY24 yoy (%) 8.20% 7.00% 9.70%
Inflation Feb-25 yoy (%) 3.61% 4.26% 5.09%
Policy Rate Apr-25 % 6.00% 6.25% 6.50%
IIP Jan-25 yoy (%) 5.00% 3.50% 4.20%
INR/USD Mar-25 X 85.45 87.02 83.35

✔ The Indian Economy growth improved from its 7-month low, at 5.6% in Q2FY25 to 6.20% in Q3FY25.
✔ The improvement in real GDP growth was mainly led by the six-quarter highest growth in final consumption expenditure (7.1% in 3QFY25 vs.
5.3%/5.6% in 3QFY24/2QFY25). Both private and government consumption witnessed an improvement during the quarter.
✔ Nominal GDP growth was 9.9% in 3QFY25, lower than 12.9% in 3QFY24 but better than 8.3% in 2QFY25.
✔ In 9MFY25, real GDP grew 6.1%, which was lower than 9.5% in 9MFY24 and the lowest in the last four years during the corresponding period.

Source: Bloomberg, MOSPI

Silver Lining for India as Global Trade Conflicts Unfold

The US is one of the largest trading partners of India, with bilateral trade of USD124b in CY24. Exports from India to the US reached
USD81b, and imports to India from the US amounted to USD44b. This resulted in a trade surplus of USD37b for India in CY24.
Source: MOFSL
 Flows, Valuations,
Earnings

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FIIs sell around $0.4bn in Mar-25; MFs / DIIs remain buyers of equities
2: FIIs continue to be net sellers, DIIs and MFs are net buyers of Equities
▪ FIIs were net sellers of Indian equities at $0.4bn in Mar-25. DIIs were FII Equity, US$mn MF Equity, US$mn DII Equity, US$mn
65,000
net buyers at $4.4bn. MFs were net buyers at $0.7bn. 55,000
52,264

45,000
▪ FIIs turned net buyers in debt markets at $1.1bn while MFs were net 35,000
21,371 20,743
25,000
sellers at $8.7bn in the month of Mar-25. 13,718
19,926
2,058 10,782 12,930
15,000 10,283
7,912 3,661
3,677 4,510
▪ SIP flows have averaged ₹23,948 so far in this fiscal vs ₹16,601cr in 5,000 124 685

-5,000 -401
the last fiscal -15,000
-16,501 -13,421
-25,000
▪ Feb’25 SIP flows were relatively lower at ₹25,999 cr. CY21 CY22 CY23 CY24 CTYD25 Mar-25

1: Feb-25 SIP flows at Rs260bn, up 36%yoy 3: FIIs turned net buyers of Indian debt in Mar-25; MFs have been sellers
320 FII Debt, US$mn MF Debt, US$mn
30,000
17,799
270
265 264 260 20,000 13,301
253 253
245 8,294
233 235 10,000
213 80 1,113
220 204 209
0
188 192 193
169 171
176 -1,535 -2,021
-10,000 -4,764
170 154 158 160 -8,730
147 147
139 137 143 137 -11,424
-20,000
120
-30,000 -22,365

70
-40,000
-40,606
Jun-23

Nov-23

Dec-23

Jun-24

Nov-24

Dec-24
Jul-23

Jul-24
Oct-23

Oct-24
Feb-23

Apr-23

Sep-23

Feb-24

Apr-24

Sep-24

Feb-25
Mar-23

May-23

Aug-23

Mar-24

May-24

Aug-24
Jan-23

Jan-24

Jan-25

-50,000
CY21 CY22 CY23 CY24 CTYD25 Mar-25

Source: Bloomberg, NSDL, SEBI, AMFI

Equity market valuations have rationalized; could see further consolidation
Nifty valuations at long period average; Could see further moderation basis the extent of risk from tariffs and trade wars
1: India’s market cap to GDP down from all time highs 3: Nifty forward PE has fallen closer to LPA levels

35 Nifty forward
PE
30 Average

25 +1SD

20

15

10

Dec-15

Dec-16
Aug-15

Aug-16

Aug-17
Jan-18

Sep-18
Jan-19

Sep-19
Jan-20
Jun-20

Feb-21
Jun-21

Feb-22
Jun-22
Apr-16

Apr-17
Mar-15

Oct-20

Oct-21

Oct-22

Jul-23

Jul-24
Mar-23

Nov-23
Mar-24

Nov-24
Mar-25
May-18

May-19
2: Earnings yield to bond yield spread has corrected 4: Nifty PB has fallen below LPA; closer to -1SD
4.2 Nifty 1FY forward PB Average -1SD

3.7

3.2

2.7

2.2

1.7

Mar-17

Mar-18

Dec-18

Dec-19
Apr-19

May-20

May-21

Mar-24

Mar-25
Jun-15
Oct-15

Jun-16
Oct-16

Jun-22
Oct-22

Jun-23
Jan-15

Nov-17

Aug-19

Jan-21

Jan-22

Nov-23

Nov-24
Feb-16

Jul-17

Jul-18

Sep-20

Sep-21

Feb-23

Jul-24
Source: SBIMF Research, Bloomberg; MOFSL
P/E derating in uncertain environment
Nifty 50 Nifty Closing Price 1 yr Forward P/E
Period
Performance Start Level End Level Start P/E End P/E Median drop
May'06 to Jun'06 -30% 3,754 2,633 18.24 12.53 -31%
Feb'07 to Mar'07 -15% 4,224 3,577 17.61 14.71 -16%
Jul'07 to Aug'07 -12% 4,621 4,075 17.88 15.59 -13%
Jan'08 to Oct'08 -60% 6,288 2,524 22.76 9.20 -60%
Nov'10 to Dec'11 -28% 6,312 4,544 19.14 12.95 -32%
Mar'15 to Feb'16 -23% 8,996 6,971 22.67 17.98 -21%
Jan'18 to Mar'18 -10% 11,130 9,998 24.44 21.73 -11%
Aug'18 to Oct'18 -15% 11,739 10,030 25.12 21.35 -15%
Jun'19 to Sept'19 -11% 12,089 10,705 25.05 21.74 -13%
Jan'20 to Mar'20 -38% 12,362 7,610 24.57 14.94 -39%
Oct'21 to Jun'22 -17% 18,477 15,294 23.91 17.92 -25%
Sep'24 to Mar'25 -16% 26,216 22,083 22.92 18.27 -20%

▪ Going by the market correction phases over the last 20 years, in the last 11 such instances Nifty P/E has seen a median drop of 21%
from the start to end. This suggests the decline in Nifty P/E since Sept’24 till date falls well within the typical historical range.
▪ However, if once watches six sigma events like 2008 GFC or 2020 Covid, sharper drop in P/E levels can’t be ruled out as the market
tries to factor in potential shocks from macro disruptions and flaring up of geopolitical tensions and hence one needs to be watchful
before taking allocation decisions.

Source: Bloomberg
Why do we still advocate exiting small caps?

• Despite the sell-off seen in Small Cap segment, it continues to trade at a relative premium.
• In the current uncertain environment, given the premium valuations in this segment, profit booking / cash creation can be considered

Source: MOFSL
Large-caps trade at discount to LPA; broader markets still trade at a premium

• The 12M forward P/E of Nifty-50 is 13% below its Sep’24 high, while mid- and small-cap valuations have fallen 18% and 12%,
respectively, over the same period.
• Nifty-50 is trading at a 3% discount to its LPA, while mid- and small-cap indices are trading at 26% and 32% premiums to their LPA
Source: MOFSL
Impact Analysis of Tariffs and Trade Wars
• Reciprocal Tariffs and Trade Wars could lead to:
i. Global and country specific GDP growth slowdown; Could push the US into recession
ii. Inflation could shoot up in the US
iii. Disruption of global supply chains
iv. A seismic change in global order – era of rules-based globalization and free trade could end / creation of fragmented trade blocs
v. Loss of trust in the US
vi. Difficulty in finding fair value for currencies v/s the USD
vii. Private capex could get delayed / stopped in anticipation of collapse in demand
viii. Heightened and prolonged market volatility
ix. Strategic realignment of economies – could shift global economic balance / build domestic capabilities
• There are multiple unknowns that investors need to watch out for:
i. How will the impacted countries retaliate?
ii. Will the US back track from the enhanced tariffs that have been announced?
iii. Will the Trump Government be overturned?
iv. Will countries use force to get their way?
v. Could geopolitical unrest flare up?

• Silver lining for the Indian economy:

i. Shift in Global Supply Chains (China+1 Opportunity): Increased FDI in manufacturing and textiles, PLI scheme positions India well
ii. Domestic industry push by encouraging import substitution
iii. Insulated by domestic demand (only 2% of India’s manufacturing exports is to the US) – India’s large and growing domestic market offers a buffer
iv. India is actively working with the US trade representatives to close free trade agreements.

Source: MOFSL
 Equity Market
Outlook

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Equity Outlook & Strategy
▪ The Nifty, after five consecutive months of decline, bounced back 1: Nifty December 2025 target range based on adjusted EPS expectations
smartly in Mar’25 with a 6.3% MoM gain – the highest since Jul’24.
10 Year
▪ During the last 12 months, midcaps have gained 7%, outperforming -1SD +1SD
Average
largecaps and smallcaps, which have risen by 5% each.
▪ FIIs recorded marginal inflows in Mar’25 after two consecutive
months of outflows. Nifty 1-year forward PE 18.6 20.3 22.0
▪ “Liberation Day” announcement by the US marks a seismic change in
global order – era of rule-based globalization and free trade seems Nifty 50 EPS expectations
1250
to be challenged. in FY27
▪ Markets are hurting because of uncertainty created by US tariffs and
retaliation by affected countries like China, Canada and the EU. Nifty range at end of 2025 23,275 25,350 27,438
▪ This will weigh on global trade, economies and markets.
▪ With US stocks and most of the global markets in a slide, there are voices of concern that can be heard from across institutions and global
leaders. Its not about stock prices alone. Major market downturns have often presaged a US recession, and many larger banks have
increased their probability of the same in the past few days or an even more likely sharper slowdown in growth.
▪ While many countries might rush to negotiate trade deals, the effect of tariffs may wear off in months leading to a sideways market at best.
▪ In this context, Indian equities are expected to remain volatile in the foreseeable future.
▪ Price correction on equity indices (Nifty), has brought headline valuations closer to historical averages. If once watches six sigma events like
2008 GFC or 2020 Covid, sharper drop in P/E levels can’t be ruled out as the market tries to factor in potential shocks from macro disruptions
▪ Also, expectations for FY26 corporate earnings (15% for the Nifty-50) are still elevated. In our opinion, given the underlying macro-micro
backdrop earnings are ripe for further downgrades.
▪ We remain watchful of the situation that’s unfolding in global markets. We believe the Nifty could be rangebound in the next 6 months with
a slow recovery as global calm and stability might not return anytime soon.
▪ We maintain a Neutral stance towards equities in view of heightened uncertainties and potential slowdown.
▪ Earnings, economic recovery, global monetary policy and extent retaliatory tariffs / trade deals could provide cues on market.
Source: Bloomberg; InCred Wealth
Equity Outlook & Strategy
• Existing equity holdings:
i. It’s a good time to revisit portfolio allocations across investor portfolios.
ii. SMID segment continues to trade at a premium relative to Large Cap stocks, and to its respective long period average
valuations (despite recent correction). We continue to advocate caution here and hence remain marginally underweight in Mid
and Small caps. Basis this view, tactically, we continue to remain overweight Large Caps (70% of equity portfolio) and restrict
Mid Caps and Small Caps to 20% and 10% of equity portfolio respectively.
iii. If not already initiated, this continues to be a good time to take profits specially from mid and small cap investments made over
past 2 years. Re-invest 30% - 40% of these profits immediately as lumpsum back into equities with a large cap tilt. Balance 60% -
70% to be staggered over the next 6 months / partly on market dips.
iv. For those under allocated towards the mid and small cap segment, its prudent to deploy over a 6 – 9 months stagger or longer.
v. Alternative investment solutions such as MLD ideas can be considered that generally offer principal protection and accelerated
participation in market up-move.

• Investors sitting on the sidelines with cash in portfolios:

i. Prudent to deploy over a 6 – 9 months / buy the declines for greater than 2-year perspective.
 Fixed Income Outlook

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Yield curve continues to offer relative value in medium to long duration
2: Yield curve has steepened marginally in 2025
▪ G-sec yields have come off over the past few months, across tenures.
31-Dec-23 15-Jan-25 03-Apr-25
▪ AAA Corporate bond yields have seen some hardening in the 5yr, 7yr
7.20 7.19
7.14 7.14
and the 10yr corporate bond yield segment 7.09 7.09
7.00
▪ Movement in rates upto 1yr maturity has been the most subdued. 6.80 6.80
6.72 6.72 6.76
▪ Spreads in the AA / A rated segment continue to remain attractive in 6.67
6.60
6.50
the 3yr maturity segment. Some spread improvement has been seen 6.40 6.37
6.42
6.30 6.32
in the AAA 3yr segment in the past month. 6.20

6.00
▪ Yields were largely stable post the recent MPC policy meeting. 1Y 3Y 5Y 7Y 10Y

1: Issuers with credit rating “A” offers higher credit spreads 3: AAA curve is inverted give the sharp fall in short term liquidity; Should get addressed
31-Dec-23 15-Jan-25 03-Apr-25
3-year tenor 3-Apr-25 Dec-24 Dec-23 Dec-22 8.00
7.90 7.88
G sec 6.32 6.72 7.09 7.04 7.80 7.79
7.75 7.77 7.76
Credit Spreads (bp) 7.70
7.60 7.66 7.53
7.50 7.45
AAA over G sec 78 81 56 62
7.40 7.36
7.28
7.30
AA over AAA 83 76 67 63 7.20 7.19
7.10 7.10 7.08 7.10 7.07
7.00
A over AA 142 184 134 165
1Y 3Y 5Y 7Y 10Y
Source: Bloomberg
Overnight and Short-term rates come off their highs
1: Banking system liquidity in deficit 2: Overnight rates align close to the Repo rate (shaded area is policy corridor)

▪ Seasonality in supply pressure and liquidity flows were broadly neutralized as the combination of frictional and durable liquidity infusion
measures led to a material softening in market yields as well as some tightening in spreads

▪ Even as the domestic monetary policy direction has shifted over the course of the second half of last fiscal year, the shift in liquidity
operation clearly has been more prominent

▪ The impact of liquidity actions, with a cumulative durable liquidity injection of Rs 8.9 trillion (Including the additional Rs 800 bn OMO for
April and the longer VRRR) since Dec 24 has clearly led to better transmission and would continue to be relevant going forward.

Source: Bloomberg; SBI MF

Fixed income Outlook and Allocation Strategy
Outlook:
▪ The RBI cut rates by 25bps for the second time in a row, in lines with market expectations. Also, the policy stance was changed from neutral to
accommodative, entailing easy policy that is geared towards stimulating the economy through softer interest rates.

▪ With Repo Rate at 6% and view on durable liquidity to be positive, the recent transmission into market interest rates is expected to sustain. At
the same time, given that the neutral stance was linked to external uncertainties, there may possibly be no change in the stance as possibly
being anticipated.

▪ While debate around the terminal rate may persist amid shifting views on further easing, we expect the overall magnitude of cuts to remain
modest.

▪ The Budget outlines continued fiscal consolidation, targeting a 4.4% deficit-to-GDP by FY26. While minor slippages warrant monitoring, strong
demand and stable-to-negative net government bond supply create a supportive backdrop for bonds over the next 12–18 months.

▪ As external volatility reshapes market expectations, a dynamic and continuously reassessed approach to duration will be essential.

▪ Today's yield landscape offers compelling, lower-risk relative value plays through select funds—well-suited to investor appetite across both risk
and duration.

▪ Positioning into duration-driven dynamic bond funds and also allocating to credit strategies can unlock attractive opportunities for investors.
Deployment Strategy:

▪ Upto 50% of fixed income to be allocated towards medium – long duration strategies.
▪ Further, allocation of upto 35% of fixed income portfolio is suggested towards high yielding assets (bonds /funds)
▪ Balance 15% of the fixed income portfolio can be allocated towards accrual / shorter term strategies – upcoming strategies such as income plus
category of funds can be encouraged.
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