As FY25 starts with a bang, will Dalal Street bulls see history repeating in Q1?

While the analysis took the last five financial years into consideration, FY20 was an aberration as COVID-19 pandemic brought the economy to a standstill and this impacted market returns.

But the year next to it turned out to be one of the best in the history for markets, as 50 gave 20% returns, and outperforming it, both midcap and smallcap indices gave returns of 26% and 27%, respectively, in the June quarter of FY21.

A strong rebound of the economy from the pandemic and easy liquidity drove the markets higher in FY21.


Similarly, the first quarter of FY22 was also good, as the economy gained further strength aided by government’s investment and lower interest rates. However, the action was more in the broader market, and this saw the midcap and smallcap indices giving double-digit returns of 14% and 22%, respectively. The broader market continued its outperformance over Nifty 50, which gained 7%.

But after a stupendous run in FY21 and FY22, the bulls felt fatigue and returns moderated sharply in FY23. In the June quarter of FY23, Nifty 50 fell by a sharp 10% while the correction in the smallcap segment was deeper, with the smallcap index dropping by more than 14%.

The correction in the market was triggered by the skyrocketing inflation which forced central banks to start raising interest rates. Rate hikes in the US was unprecedented as inflation hit a 4-decade high in July 2022.

Tightening liquidity conditions and high inflation prompted foreign investors to pull out money from risky assets, and India saw heavy outflows.

However, equities made a strong comeback in FY24, thanks to the strong domestic economy. The unprecedented faith of domestic investors drove markets higher, and all – Nifty 50, Midcap 100, and Smallcap 250 indices clocked high double-digit gains in the first quarter of FY24.

The highest gain of 20% was registered by the Smallcap 250 index, followed by the Midcap 100 index which rallied over 19%.

What could happen this time?

Equities have kickstarted the first quarter of the current financial year on a good note, with benchmark indices scaling lifetime highs.

But the first quarter of this financial year holds significance, as the general elections will begin later this month, and the results of the same will be announced on June 4.

The market remains optimistic about a third term for the incumbent government led by Bharatiya Janata Party, and to a large extent, this is also getting discounted. However, the end result will be crucial to gauge the trajectory for markets for the rest of the year.

“I guess the volatility is going to be maybe the order of the day for at least the next six months or so and the reason is pretty simple. Basically, the market is looking for clarity in terms of politics and the policies,” said Niraj Kumar, CIO, Future Generali.

Meanwhile, an optimist Devang Mehta of Spark Private Wealth is betting on a pre-election rally in the market.

“There is a lot more liquidity and bullish sentiment that has returned to the market. I am not feeling bearish at all. It is probably the start or somewhere down the line will be the start of a pre-election rally as well,” Mehta said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)