This is the second month in a row that the Indian market reported gains with large caps wiping out losses of the first two months (January and February), but Mid and small caps remain in the red. Despite a better advance decline ratio in April, Mid and small caps underperformed the large caps. While there is a hope that they should catch up and act soon, we sense there could be more time and price corrections in the Mid and small caps. Hence, expecting them to bounce back soon may be a little premature. Our advice would be little careful with stock selection in the Mid and small caps.

But what we should expect going forward is the larger question that is bothering investors.

To understand this, we have looked at the factors that are positive and can pull the market up and factors that can push the market down.

Let us start with the positive factors.

FPIS are back

After heavy selling in the last six months, FPIS are back in the Indian market with positive flows. They bought shares worth Rs 4223 crore in April. This is mainly due to the fact that India is domestic driven economy with less exposure to the international market. But we are not sure FPIS will continue to pump money as market dynamics are changing very fast. We would not like to believe that FPI inflows would be positive for the next couple of months.

Crude Oil prices are falling

Who could have thought at the beginning of 2025 that crude oil prices could go as low as $60 per barrel? India is heavily dependent on imported crude oil prices, and hence, a fall in prices helps India in many ways: It reduces demand for the dollar, pushes inflation down as India imports inflation, and helps the RBI reduce interest rates.

The government may use lower crude oil prices to increase revenue by hiking excise duty on petrol and diesel as it did in April 2025. Since prices have corrected more since then, it may further hike excise duty (there is no impact on selling price), which can help generate more revenue, which in turn can be used to support the economy when the global environment is quite fragile.

Inflation and RBI rate cuts

India’s retail inflation in October was at 6.21 per cent, down from 3.3 per cent in March 2025. Lower inflation increases disposable income, helping to boost consumption. RBI did two rate cuts in 2025- February and April- reducing interest rates by 50 bps. In all probability, we should expect more rate cuts from the RBI as a fragile world environment and softer inflation is conducive to lowering interest rates. The lower interest rates mean lower EMI, increasing purchasing power, helping to improve the consumption story.

Tax rebates are kicking in

In the last budget, the government provided a tax rebate, under which anyone earning less than Rs 12 lacs would pay no income tax. As per the budget document, this would be a tax forgo of about Rs 1 lac crore. The lower tax liability means, again, higher disposable income, pushing the consumption story.

Amicable solution to the Tariff war

Various countries, including the US, are now facing the hard reality of the tariff war. We will not be surprised if the US and other countries come to the discussion table to create a middle path and ensure that world economic growth does not collapse.

But at the same time, one should not ignore negative factors that can impact the market sentiments.

No growth in the March quarter numbers

Till now, half of India Inc. (in terms of market cap) has declared its March 2025 numbers. While there is topline growth of 6% YOY, net profit growth is muted. Many corporates have given guidance, but they worry that the guidance may not hold true as the world economy is changing very fast due to the tariff war. Hence, there is uncertainty that growth could be a casualty.

Valuations are rich

In the trailing 12 months, India Inc. is trading at 26x. This is a rich valuation, especially when earnings growth is not there. At the same time, the global economic scenario is not that great. Many agencies, including the RBI, have scaled down India’s GDP growth numbers for FY2026, meaning India Inc.’s earnings could moderate. In that case, sustaining a 26x price-to-earnings ratio is not easy.

Mutual fund inflows are on decline

In December 2024, Net inflows to the Mutual funds were Rs 41000 crore. For March 2025, it was Rs 25000 crore- a drop of 40 per cent compared to December. While data for April is not yet out but market sources suggest that inflow would be on the same line as March. Lower inflow does limit the upside movement in the market.

Escalation of the Tariff war

While we are optimistic that some sense will prevail in the tariff war, there is no guarantee that it will happen. If, for some reason, the tariff war escalates, it could dampen sentiments.

India-Pakistan war-like situation

The situation at the border is tense after the attack on tourists in Jammu and Kashmir. India hit nine terrorist camps, with a few inside Pakistan. The market is nervous as this tension could spoil market sentiments. Our base case scenario is that any action would be short, and hence, its impact on market sentiments would be limited.

So, what should be your action plan

We continue to believe that making money in 2025 would not be easy. We will see bouts of ups and down in the market, which could impact your portfolio returns substantially. Hence, our advice is to take a portfolio approach and, if possible, take professional fund manager guidance. The way investors made money in 2023 and 2024 is unlikely to be repeated in 2025.

While there are challenges in the short term, the medium—to long-term outlook is good. You can blame yourself if you don’t make money in the medium to long term. Act sensibly to protect and grow your wealth.