Stock Market Rebound: Strategy for Retail Investors Amid Volatility

Markets Stage a Strong Comeback, But Caution Remains Key

India’s equity markets have staged an impressive recovery in March 2025, with the BSE Sensex and Nifty50 posting consecutive gains over six sessions. On March 24, the Sensex surged over 1,000 points (1.40%), closing at a six-week high of 77,984. The strong rally has sparked discussions among investors and analysts about whether the rise is sustainable or just a temporary rebound after months of selling pressure.

While global and domestic factors have fueled optimism, financial advisors urge investors to tread cautiously, adopting a staggered approach to equity investing instead of making lump-sum allocations.

Global Factors Driving the Market Rally

The ongoing global economic and political shifts have played a significant role in the current stock market rebound. Analysts believe the uncertainty of 2024 is gradually fading, leading to renewed investor confidence.

“Equity markets are rallying as global macro uncertainty from CY24 fades, driven by elections in over 50% of the top 20 economies. The cycle is set to culminate with Trump’s remarks on India Inc. in early April. While earnings uncertainty persists, the resumption of macro decision-making should pave the way for economic momentum, ultimately supporting corporate earnings growth in the second half of FY26,” said Trideep Bhattacharya, President and CIO-Equities, Edelweiss MF.

Foreign Investors Eye Emerging Markets Like India

With US President Donald Trump’s tariff threats increasing market uncertainty, investors are beginning to shift their capital allocations from US equities to emerging markets like India.

“The conjecture being drawn is that institutional investors will consider reducing their allocation to US markets, and that allocation will flow to other markets, including India. Some of the foreign institutional investor (FII) buying witnessed over the last few days can be attributed to this,” said Ashish Khetan, Founder, Serenity Wealth.

A reversal of FII outflows has already begun, with foreign investors turning net buyers in the past three trading sessions. Between March 20-24, FIIs bought shares worth ₹15,777.73 crore, while selling ₹12,721.97 crore, indicating renewed confidence in Indian equities.

Is the Stock Market Rebound Sustainable?

Despite the recent rally, investment advisors remain cautious. The sustainability of the uptrend will largely depend on corporate earnings growth and global trade policies in the coming months.

“Whether the current rally sustains or not will depend a lot on Q4 results, as Indian markets are still at higher valuations even though some of the excess valuation has come off. These valuations will sustain if corporate earnings show growth. If they falter, there will be a question mark over the current market recovery’s sustainability,” said Khetan.

Factors to Watch:

• Corporate earnings for the January-March 2025 quarter

• Global trade developments, including reciprocal tariffs set to take effect from April 1, 2025

• Foreign institutional investor (FII) trends

• Macroeconomic indicators, including interest rate policies and inflation data

Adopt a Staggered Approach to Investing

Experts caution against investing all available capital in one go, urging retail investors to take a staggered approach.

“I still believe we are not out of the woods. There is an expectation that the coming quarters could be much better in terms of corporate results, and FPI inflows have turned positive over the last ten days. However, we are only up 5-6% from the bottom, and that does not mean you should invest all your funds in one go,” said Harshad Chetanwala, Co-founder, MyWealthGrowth.

Recommended Investment Strategy:

• Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) for gradual market exposure

• Lump-sum investments of only 20-25% of earmarked capital

• Focus on large-cap and flexi-cap mutual funds for stability

Stay Focused on Asset Allocation and Long-Term Goals

While market rallies can be enticing, financial planners stress that investors should stick to their asset allocation and long-term financial goals.

“Investors must avoid making impulsive investment decisions based on short-term market movements. Your asset allocation, rather than market fluctuations, should dictate your investment strategy,” said a senior investment strategist at a leading wealth management firm.

Disciplined Portfolio Rebalancing:

• Reallocate funds if equity allocation deviates significantly from strategic goals

• Reduce exposure if equity allocation exceeds target weight

• Increase allocation when markets correct significantly