Banking, Infra, and Smallcap Funds Lead Gains as Nifty Rebounds 10%

Equity Funds See Broad-Based Recovery As Markets Shake Off Tariff Concerns

India’s equity markets have delivered a strong rebound from their early March lows, with the Sensex and Nifty surging nearly 10% from March 4 to April 22. This sharp rally, largely supported by investor optimism over India’s limited exposure to Trump-era reciprocal tariffs and progress in bilateral trade talks with the US, has driven notable gains across most equity mutual fund categories—barring the technology sector.

Mutual fund data reveals that this rebound has been broad-based, with Banking & Financial Services Funds emerging as the top performer, yielding over 14% during the recovery. Infrastructure, smallcap, consumption, and business cycle funds also posted double-digit returns, underpinned by domestic macroeconomic stability and a surge in banking stocks.

Highlights:

• Sensex and Nifty have rebounded ~10% since March 4.

• All active equity fund categories except tech have posted positive returns.

• Investor optimism linked to India’s likely limited tariff exposure.

• Bilateral trade discussions and monsoon forecasts boost market confidence.

Banking and Infrastructure Funds Drive Outperformance in Recovery Phase

The most significant gainer during this market recovery has been the Banking & Financial Services Funds category, which delivered an average return of 14.45%. This gain was driven by a rally in both public and private sector bank stocks, with the Bank Nifty touching record highs amid improved investor sentiment and strong earnings prospects. Infrastructure funds followed closely with 12.47% returns, bolstered by increased capex visibility and sustained government focus on infrastructure development.

Smallcap and midcap categories also saw a strong rebound, though selective stock-picking remains key. The Smallcap Funds category returned 11.03%, while Large & Midcap and Business Cycle Funds posted returns just above 10%.

Meanwhile, HDFC Defence Fund stood out among individual schemes with a 22% gain since March 4, indicating that thematic and niche plays can yield exceptional returns in momentum-driven rallies.

Highlights:

• Banking & Financial Services Funds delivered 14.45% average returns.

• Infrastructure Funds returned 12.47%, Smallcap Funds 11.03%.

• HDFC Defence Fund posted highest scheme-level return at 22%.

• Broader market rally supported by banking, infra, and consumption sectors.

Selective Stock Picking and Sectoral Trends Define Recovery Trajectory

Despite the broad recovery, analysts stress that returns have been driven by a limited subset of outperforming stocks, not a sector-wide surge. According to Nirav Karkera, Head of Research at Fisdom, investors should not interpret the fund-wide rally as a signal of blanket growth across all stocks in a segment.

Karkera remains optimistic about frontline largecap banks, while adopting a more cautious stance on midcaps. He also notes that within smallcaps, a very selective and analytical approach is required, as not all stocks are participating equally in the recovery.

The Technology Funds category was the lone underperformer, recording a marginal negative return of -0.31%, weighed down by weak global cues and earnings disappointments.

Highlights:

• Only select stocks are driving returns, not entire sectors.

• Largecap banks are seen favorably positioned for continued growth.

• Technology Funds underperformed with a negative return of -0.31%.

• Sectoral differentiation remains critical in portfolio allocation.

Should Investors Turn Aggressive Amid Market Rebound?

As quarterly earnings unfold and geopolitical concerns linger, market experts urge investors to remain measured. While much of the bad news appears to be priced in, the global tariff narrative and domestic valuation concerns continue to warrant caution.

Angel One’s Aamar Deo Singh recommends staggered investments, urging investors to stay invested but avoid lump-sum exposures given prevailing volatility. He emphasizes that while most known negatives have been factored in, Black Swan risks remain.

Ravi Kumar TV, founder of Gaining Ground Investment Services, adopts a more conservative stance, pointing to the uncertainty surrounding tariff implementation once the current 90-day suspension expires. Notably, US President Donald Trump announced on April 9, 2025, a temporary suspension of his reciprocal tariffs, excluding China, but the policy landscape remains fluid.

In such a scenario, hybrid strategies, particularly balanced advantage funds, are gaining traction among cautious investors looking for better risk-adjusted returns. These funds provide a cushion through asset allocation and could serve as an optimal choice in periods of global uncertainty.

Highlights:

• Volatility persists despite short-term rebound; staggered investment approach advised.

• Uncertainty over Trump’s tariff pause could trigger renewed selling.

• Hybrid categories like balanced advantage funds seen as safer bets.

• Long-term outlook constructive, but tactical caution recommended.

Active Equity Fund Performance Snapshot (March 4 – April 21)