Global Economy
Global Headwinds:
March 2025 brought mixed signals for the world economy. Global PMI data showed a modest downturn – the JP Morgan Global Composite PMI declined from 50.6 in February to 50.3 in March – indicating annualised global growth around 2.5% (vs ~3.3% in Q4 2024)
This suggests growth momentum has softened compared to late last year, with developed markets like the US, Eurozone, UK, and Japan experiencing slower expansion or minor contractions.
Meanwhile, emerging economies are faring better: India led the BRICs with its fastest growth since last August, offsetting slight service-sector cooling. China’s economy continued a modest post-reopening expansion, with March activity the highest since November. Overall, global consumer demand and labor markets remain resilient, but business confidence has been shaky – March saw global business sentiment near its lowest since 2022 amid policy uncertainties and geopolitical strains.
A major new headwind is the U.S. administration’s tariff actions, which have begun to ripple through trade and investment. In early April, President Trump announced sweeping import tariffs – a 10% baseline tariff on all imports to the U.S., with additional higher duties on key trading partners
Smooth Hawley Act:
Passed in 1930 during the Great Depression, the Smoot-Hawley Tariff Act imposed steep tariffs on over 20,000 imported goods into the U.S. Intended to protect U.S. farmers and industries, it led to retaliatory tariffs from other countries.
Result: A collapse in global trade, worsening the economic downturn and deepening the Depression.
Like Smoot-Hawley, Trump’s tariffs are aimed at re-shoring production and protecting domestic industries. A 10% blanket tariff, along with higher duties on specific countries, could disrupt supply chains and global trade flows, much like the 1930s. Other economies (e.g., China, EU, India) may respond with counter-tariffs, triggering a modern-day trade war.
Potential Impact on Markets and Economy
Global Trade Downturn: Higher costs and uncertainty may slow trade volumes and reduce corporate earnings, especially in trade-sensitive sectors.
Investor Sentiment: As with the post-Smooth-Hawley period, markets may see volatility, capital flight, and valuation compression in exposed regions.
Economic Fragmentation: Long-term, this could accelerate de-globalization, pushing countries toward bilateral blocs and away from open trade systems.
US Tariffs:
President Trump’s April 2025 tariff announcement sparked a sharp and widespread selloff across global equity markets, with investors pricing in the risk of rising costs, slower global trade, and potential retaliation.
Trump’s sweeping tariff package—including a 10% blanket import tax and higher duties on countries like China, India, and Japan—sparked sharp equity declines globally. Investors priced in trade disruption, inflation risks, and policy retaliation.
Trump on 9th April announced that he had authorised a 90-day pause, and a lowered Reciprocal Tariff of 10 per cent during the three months of truce amid trade wars induced market meltdown. President Trump also announced that the US had hiked China tariffs to a whopping 125 per cent.
While the tariff pause has provided temporary relief, sectors directly impacted by the tariffs, such as pharmaceuticals and seafood exports, continue to face challenges.
U.S. tech, Asian exporters, and European manufacturers face earnings pressure. Safe-haven flows may rise; risk-off sentiment persists. Repricing of global growth expectations could fuel more volatility ahead.
Indian Economy
Macroeconomic View - Strong Fundamentals
Consumption leading to recovery in GDP Growth: While private consumption growth rate picked up on back of strong kharif output and revival in rural consumption, Government consumption saw acceleration in growth on back of increased Government spending in Q3. Although manufacturing sector growth remains below par, the sector saw meaningful recovery in Q3 compared to the previous quarter.
Stable Government Finances with Strong Capex Focus: The government remains committed to higher capital expenditure, expected to meet revised estimates despite an initial slow start. The fiscal deficit target for FY26 is set at 4.4% of GDP, down from 4.8% in FY25, and is likely to be achieved.
Trade Deficit Marginally Higher but Likely Rangebound: India’s trade deficit widened slightly in Jan'25 as exports declined faster than imports, driven by lower petroleum and engineering goods exports. While non-oil, non-gold imports picked up, overall trade dynamics remained stable. Strong services exports should keep the current account in check, but restrictive trade policies and trade war risks will shape the medium-term outlook.
RBI slashes rate cut by 25 bps: The Reserve Bank of India announced a 25 bps repo rate cut and projected moderation in inflation in FY26. RBI believes inflation will decline further, remaining comfortable this year as the central bank trimmed inflation projection for the current financial year to 4% against 4.2 % earlier. Highlighting the impact of global trade and policy uncertainties, RBI cut GDP growth projections for FY26 to 6.5 % from 6.7 % earlier. Moderating inflation and growth indicate there could be three to four more rate cuts in the current cycle.
US - India Trade Relations
U.S. – India’s Largest Export Destination: The United States continues to be India’s top export market, accounting for 18.6% of total merchandise exports in FY25, with exports totalling $60 billion in the first nine months of the fiscal year.
Global Trade Disruptions & Indirect Risks: Recent and proposed tariff measures have the potential to reshape global trade flows. Although India’s goods exports-to-GDP ratio is relatively low (4%), reducing direct exposure, the economy remains susceptible to indirect impacts—including softening global demand, supply chain disruptions, and dampened investor sentiment, all of which could be amplified by rising financial market volatility.
Negotiation Outlook & Strategic Positioning: Negotiations are likely to begin with the objective of moderating tariff levels to more manageable thresholds. India draws some comfort from Section C, Clause 4 of President Trump’s executive order, which signals a willingness to reduce or cap tariffs if a trading partner demonstrates constructive engagement on issues related to non-reciprocal trade practices and aligns with the U.S. on key economic and national security priorities.
Bilateral Trade Ambitions: India and the U.S. have outlined an ambitious goal of expanding bilateral trade from $190 billion to $500 billion by 2030—more than a twofold increase. As part of this strategy, India plans to increase imports from the U.S., signalling a more balanced and strategic trade relationship going forward.
Tariff Impact
Tariff Exposure Higher Than Anticipated: Approximately 87% of India’s $81 billion exports to the U.S. will now fall under the new tariff framework, significantly surpassing initial expectations and raising the stakes for export-oriented sectors.
India’s Relative Advantage: Despite the broader hike in tariffs, India remains competitively positioned. Among major Asian economies, India is now one of the least tariffed exporters to the U.S., preserving some of its edge in global trade flows.
Minimal Impact on GDP: In a downside scenario involving a 10% decline in U.S.-bound exports, the impact on India’s GDP would be limited to ~0.2%. This could be mitigated by strategic levers such as bilateral trade agreements (BTAs), the PLI scheme, and continued momentum in domestic manufacturing and import substitution.
Global Market Response & EM Dynamics: In the near term, global equities—especially U.S. markets—are expected to remain volatile as trade tensions evolve. The U.S. Dollar Index, which historically shows an inverse relationship with emerging market (EM) performance, will be key. A weaker dollar could support EM fund flows, providing upside for markets like India.
India’s Resilience & Market Positioning: Although Indian equities have underperformed global peers over the last six months, the domestic backdrop remains strong—robust growth, subdued inflation, and ample liquidity provide a platform for re-rating and relative outperformance in the coming quarters.
Equity Markets
Market Recap
Broad-Based Decline Across Indices: Major indices like Nifty 50 (-2.61%) and Sensex (-2.65%) saw declines, with mid and small caps also under pressure. Market sentiment remains cautious amid rising volatility
Metals, PSU Banks & IT Led the Fall: Nifty Metal (-6.46%), PSU Bank (-5.47%), and IT (-3.96%) were among the worst performers. These sectors likely faced pressure from global cues, weak earnings guidance, and FII outflows.
Volatility Spikes, INR Weakens: India VIX surged 8.26% MTD, indicating rising fear in the market. The INR weakened slightly against the USD, reflecting broader risk-off sentiment.
FII and SIP Flows
The capital flows showed a mixed outlook in the Indian markets, after the massive selloff in FII flows in the last 3 months, March saw a reversal in the trend marking the first month of positive net FII inflows in 2025. Debt flows turned strongly positive in March (₹~38K Cr), led by investments in the FAR and general categories, suggesting risk-off sentiment where FIIs are taking higher positions in Indian bonds for higher yields.
Monthly SIP inflows consistently rose from ₹20,371 Cr in April to a peak of ₹26,459 Cr in December .Flows stayed above ₹25,000 Cr for five consecutive months (Oct–Feb), reflecting sustained investor interest.
SIP discontinuations surged, with a 122% stoppage ratio in Feb 2025 vs 52.4% in April 2024. This indicates that while more SIPs are being registered, many are also being stopped—suggesting some investor churn. Despite the increase in new registrations, retention and investor stickiness may be weakening, possibly due to market volatility or liquidity needs.
Earnings Outlook
Forward Earnings Ratios for the majority of sectors as on February 2025 indicated that despite market corrections, the majority of the Indian sectors were trading at a premium as compared to their long-term average P/Es.
Looking ahead, key trends for Q2 in Indian equities will be influenced by global factors (trade war developments, Fed policy) and local drivers (monetary easing, earnings). A positive is that India’s relative resilience and improved macros may continue to attract foreign investors if global sentiment stabilises.
Another theme is sectoral earnings revision: banks may see upgrades thanks to better credit growth and lower provisioning, while IT may face downgrades on softer U.S. tech spending. In summary, Indian equities are entering Q2 on a much firmer footing than a month prior – valuation headwinds have lessened, and liquidity tailwinds improved. The market tone has shifted from one of caution in February to guarded optimism in early April, though bouts of volatility are likely to persist until the global trade situation clarifies.
House View - Equities
Strategic Asset Allocation (SAA): From a long-term perspective, equities remain a compelling asset class, warranting an overweight allocation in strategic portfolios. India’s structural growth story—driven by robust domestic consumption, policy-driven capex, and improving corporate profitability—continues to offer a favourable risk-reward profile. Despite short-term valuation premiums in select sectors, the broader earnings trajectory remains intact, supported by strong SIP inflows, stable macroeconomic fundamentals, and expanding global investor interest. Long-term investors should maintain a well-diversified equity allocation across market capitalisations and sectors, with periodic rebalancing to capture compounding gains while mitigating concentration risks.
Tactical Allocation: Near-term equity positioning calls for a more cautious and selective approach, with a slight underweight stance in light of elevated valuations in certain sectors and growing global uncertainties. The recent rise in SIP stoppage ratios and persistent yield curve inversion in the US suggest the potential for market consolidation or volatility in the months ahead. Tactical portfolios should reduce exposure to sectors trading at steep valuation premiums—such as Cement and Utilities—and instead rotate into defensives like FMCG, or value pockets like Private Banks. Maintaining a modest cash buffer can also provide flexibility to deploy during market dips or event-driven dislocations.
Fixed Income Markets
US Bonds
Government bond yields in major economies have fallen significantly from their early-year highs. In the U.S., the 10-year Treasury yield plunged to around 3.8–3.9% by early April (down from ~4% at the start of the year), driven by a combination of recession fears and a flight-to-quality after the tariff announcements.
Market expectations for the Federal Reserve have shifted notably compared to last month: previously the debate was about how long the Fed would hold rates high; now futures are pricing rate cuts to begin by late 2025 given the “policy shock” to growth from trade tensions.
The key inflection from last month is that the narrative has pivoted from “higher for longer” interest rates to “peaking/turning point reached”. In Q2, markets will watch if the Fed and ECB indeed pivot – any hints of rate cuts or extended pauses could further boost bond prices.
Indian Bonds
India’s fixed income market has seen a remarkable rally in recent weeks, reflecting both global trends and domestic policy shifts. The benchmark 10-year Indian government bond yield fell below 6.50% for the first time in over 3 years.
The RBI’s surprise repo rate cut in Feb immediately boosted sentiment in the bond market – bond traders now foresee a cumulative 25-50 bps easing in 2025. Secondly, cooling inflation and the rupee’s stability have lowered the risk premium; real yields in India are attractive again (with CPI ~4%, a 6.5% 10yr yield gives a healthy ~2.5% real yield).
RBI’s liquidity actions played a role: the central bank conducted a ₹50,000 crore 14-day repo auction in March and possibly open-market bond purchases, which improved banking system liquidity and bid for bonds. Finally, India’s FY26 government borrowing plan unveiled with the budget was roughly in line with expectations (net borrowing only marginally higher YoY – these assuaged fears of oversupply of bonds.
Compared to last month, the sentiment shift in bonds is profound: in late February, there was caution that rising U.S. yields could pressure Indian yields; by early April, with global yields falling and an RBI dovish turn, Indian bonds had entered a mini bull market.
House View - Fixed Income
Strategic Asset Allocation (SAA): Fixed income remains a foundational anchor for long-term portfolios, offering predictable cash flows and capital preservation. With yields normalising globally and India offering relatively high real rates, bonds are becoming attractive again, especially across 3-7 years tenors. For conservative or income-seeking investors, a diversified allocation to quality debt across sovereign, corporate, and dynamic bond funds can provide balance and stability against equity market fluctuations. As inflation stabilises and rate cycles turn, capital appreciation in duration assets also becomes a plausible tailwind.
Tactical Allocation: Tactically, the current environment favours a barbell strategy overweight fixed income —combining short-duration instruments to manage reinvestment risk and medium-duration papers to capture any potential rally from a future rate cut. The recent steepening of the US yield curve beyond the 3-year point, along with a 20–25 bps drop in Indian G-Sec yields, points to softening rate expectations. Investors may incrementally add duration, especially if central banks continue signalling a dovish stance. However, credit quality should not be compromised, and excessive duration bets should be avoided until there’s clarity on inflation and global policy pivots.
Gold Outlook
Risk Off Sentiment:
Gold has shone brightly in March-April 2025, reaffirming its role as a safe-haven asset in times of uncertainty. Global gold prices have surged dramatically in the past several weeks. In late March, spot gold hit a record high above $3,160 per ounce.
For the first quarter, gold posted a stellar +19% return in USD terms, making it one of the top-performing major assets (by comparison, global equities were flat to down). This sharp rally marks a pronounced change from February, when gold was trading in the $2,700s and many expected range-bound movement. The catalysts for gold’s surge have been stacking up: escalating U.S.–China trade tensions, concerns about global growth, and a weaker dollar have all boosted the metal’s appeal. Investors, spooked by volatile equity markets and economic uncertainty, flocked to gold in March – we saw large inflows into gold ETFs and funds (global gold ETFs added over 100 tons in March alone, reversing outflows from January)
The factors supporting gold are likely to persist into Q2. Safe-haven demand is elevated: the announced U.S. tariffs and any Chinese retaliation will keep investors hedging against worst-case outcomes. Gold’s surge in March directly corresponded with these tariff moves – for instance, when Trump confirmed the 25% auto import tariffs for April, the dollar index and U.S. yields fell to multi-month lows, “which supported gold prices”
However, after such a steep run-up, one should expect some consolidation. Gold can be volatile in the short term; a resolution (even partial) of trade disputes or a sudden spike in real yields could trigger a pullback. That said, any dip toward, say, $2900 (or ₹85,000/10g) would likely find strong buying interest from central banks and long-term investors.
House View - Gold
Strategic Asset Allocation (SAA): Gold continues to serve as a vital hedge in long-term portfolios, offering protection against systemic risk, inflation, and currency debasement. With rising central bank purchases, geopolitical uncertainties, and potential dollar weakness over the medium term, gold's strategic value remains intact. For diversified portfolios, a 5–10% allocation to gold can enhance overall risk-adjusted returns while reducing volatility. Its non-correlated nature makes it particularly useful in periods of equity drawdowns or stagflation scenarios, which are increasingly relevant in today’s multipolar global economic environment.
