Equity, Debt, and Gold Monthly Market Review and Outlook: March 2025

The primary reason for the fall in market is selloff by Foreign Institutional Investors (FIIs) due to US President Donald Trump's protectionist trade policies and its potential impact on emerging markets like India. US bond yields too have risen significantly in the last few months, becoming a safe haven for FIIs. FIIs net sold equity worth Rs 20,225 crore in February, after selling equities worth Rs 34,574 crore in January. Meanwhile, the Domestic Institutional Investors (DIIs) led by mutual funds offered crucial support, which restricted the fall in the market to an extent.

Meanwhile, India's PMI for manufacturing slid to a 14-month low of 56.3 in February, but overall sentiment in India's manufacturing sector remained broadly positive. During the same period, the PMI for services improved to 59 highlighting a surge in new business orders, both domestically and internationally.

Outlook: The Indian equity market could continue to witness selloff from foreign investors in the near term due to high global uncertainties. The growth outlook now hinges on a strong agricultural season, improvement in corporate earnings, and consumption boost spurred by lower taxes, and interest rates.

So, while investors may continue to invest in equities with a long-term view, it is essential to exercise caution amid global uncertainty and high volatility. Adopting a prudent asset allocation strategy can help investors to benefit from the long-term growth potential of equities at a reasonable level of risk.

Equity mutual funds are suitable only for long term financial goals that need to be achieved over the next 5-10 years or beyond. It is necessary that investors align long term mutual fund portfolio with their financial needs so that there are no unexpected risks. This can be done by creating a well-diversified portfolio comprising best equity mutual funds from different sub-categories such as Large Cap Fund, Flexi Cap Fund, Mid Cap Fund, Value Fund, etc., based on the investor's investment objective, risk appetite, and investment horizon.

Debt market update

RBI, under its new Governor Mr Sanjay Malhotra, announced a rate cut of 25 basis points in February taking the repo rate to 6.25% while also changing the policy stance to neutral. This marks the first rate reduction in nearly five years.

Following were the other key factors that influenced the Indian debt markets in February 2025:

• Retail inflation (measured by the Consumer Price Index) fell significantly to 4.31% in January 2025 compared to 5.22% in December 2024, and 5.10% in January 2024, showed the data released by the National Statistical Office (NSO). With this, CPI inflation continued to be within RBI's comfort zone of 2-6%.

  The Consumer Food Price Index (CFPI) also declined sharply to 6.02% in January 2025, compared to 8.39% in December 2024 and 8.30% in January 2024. Vegetables prices softened sequentially amid arrival of fresh produce, but remained slightly elevated compared to the year ago period.

• As expected by the RBI, food inflation pressures have seen a significant softening due to good kharif production, winter-easing in vegetable prices, and favourable rabi crop prospects.

  RBI expects Core inflation to rise but remain moderate. Rising uncertainty in global financial markets coupled with continuing volatility in energy prices and adverse weather events presents upside risks to the inflation trajectory.

Outlook: The Monetary Policy Committee (MPC) of RBI inflation to further moderate in 2025-26, gradually aligning with the target. The MPC also noted that though growth is expected to recover from the low of Q2:2024-25, it is much below that of last year. These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target.

It is likely that RBI will cut repo rates further by 50 bps in CY 2025 and may also change its policy stance from 'neutral' to 'accommodative', though the timing for the said policy actions is debatable. The expected further rate cuts make it an opportune time to invest in longer-duration debt mutual funds.

For a medium-term investment horizon of 2-3 years or more,  Banking & PSU Debt Funds, and Corporate Bond Funds may be suitable avenues, while Gilt Funds may be suitable if the investment horizon is 5 years or more. For those having a shorter investment horizon of 1 to 2 years, investing in the Ultra-Short Duration Funds and Short Duration Funds may be preferable.

On the contrary, for an investment horizon of up to or less than a year, short term debt categories such as Liquid Funds may be suitable.

Gold market update

Gold hit fresh highs in February supported by a weaker US Dollar during the month, rising inflation expectations in the US, along with lower rates and geoeconomic uncertainty. The price per 10 grams of gold stood hit an all-time high of Rs 86,360 before pulling back a bit to end the month at Rs 84,789, a gain of 3.7%.

Outlook: According to the World Gold Council (WGC), concerns over tariffs, and the wide-ranging impact they could have on the global growth, continue to cast a cloud and question US exceptionalism. Moreover, Trump's policies related to tariffs, immigration, and tax cuts have the potential to flare up inflation. WGC is of the view that these factors have been positive for gold. Thus, given the current market conditions gold is expected to remain in the limelight.

Gold offers investors an opportunity to diversify their portfolio and adopt sound asset allocation strategies.

Unlike financial assets, gold is a real asset, meaning it does not carry credit or counterparty risk. Gold is a strategic long-term asset class. Investors can consider tactically allocating around 10% to 15% of their investment portfolio to gold, ideally via Gold ETFs, maintaining a long-term perspective (5 to 10 years) and assuming moderately high risk.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.