February 2025 Market Performance Recap:
In February 2025, the Indian equity market faced a sharp correction after a strong 2024, with broader indices witnessing a steeper decline than large caps. The Nifty hit a recent low of 22,125 on 28th Feb, marking a 16% drop from its peak. Midcap and Smallcap indices corrected by 21% and 25%, respectively, while the Nifty Next-50, Midcap 100, Smallcap, and Microcap indices declined by -9.51%, -10.71%, -13.00%, and -14.27%, respectively. The correction was driven by US trade policy uncertainty, rising US bond yields and dollar index, slowing domestic earnings growth, persistent FII selling, and a lack of positive domestic triggers. The sharp downturn left the market in an oversold zone, with only 8% of NSE 500 stocks trading above their 200-day moving average.
Foreign institutional investors (FIIs) continued to liquidate their holdings, offloading ₹78,027 crore in January and ₹34,574 crore in February. The auto, healthcare, and FMCG sectors saw the highest outflows. This persistent selling pushed FIIs’ assets under custody (AUC) to a 13-month low of ₹62.38 lakh crore in February, down from a peak of ₹77.96 lakh crore in September 2024. Despite this, FII ownership in Indian equities rose to a five-month high of 16.24%.
Sectoral performance
In February 2025, most sectors witnessed sharp declines, with a few exceptions providing some resilience. Banks were the best-performing sector, falling only -2.51%, with private banks limiting losses to just -0.66%. REITs and Services indices also fared relatively better, declining by -1.5% and -4.22%, respectively.
On the other hand, several sectors saw steep corrections. Realty (-13.40%), IT (-12.53%), and Media (-12.11%) were among the worst hit, followed by Auto (-10.35%) and FMCG (-10.08%). Thematic indices also struggled, with Indian Railway PSUs plunging -21.97%, India Defence dropping -19.57%, and SME Emerge falling -15.74%. The IPO Index continued to lag, reflecting weak investor sentiment in newly listed stocks.
In the following sections, we provide a more comprehensive examination and detailed insights of some major sectors:
Auto:
The Indian auto sector experienced a mixed performance in February 2025, with year-on-year (YoY) growth in most segments despite a sequential decline. Total passenger vehicle (PV) sales stood at 3,90,604 units, reflecting a marginal 0.32% YoY growth but a 2.68% month-on-month (MoM) decline. The shift in consumer preference towards SUVs supported overall growth, though price hikes in January and February dampened demand.
The two-wheeler (2W) segment remained stable, with premium motorcycles and scooters driving sales. Overall, domestic 2W sales saw a slight YoY increase, with key players reporting growth of 3% to 19%, while others faced declines of 12% to 20%. Electric vehicle (EV) registrations moderated after a strong January, with the two-wheeler EV segment maintaining a market share of over 28%.
The commercial vehicle (CV) segment declined by 3% YoY and 1% MoM, impacted by a high base effect and moderate replacement demand. However, infrastructure-driven growth is expected to support medium to heavy commercial vehicles (MHCVs) in the coming months. The three-wheeler (3W) segment posted a 5% YoY and 2% quarter-on-quarter (QoQ) growth, driven by rising demand from the e-commerce sector.
The tractor industry showed the strongest performance, with domestic sales rising 12% YoY, supported by a 27% YoY increase in overall industry dispatches. Favorable monsoon conditions and improved water levels boosted Rabi sowing, leading to higher rural demand.
Looking ahead, the auto sector is expected to undergo consolidation in the short term. However, rural recovery, new model launches, and government measures to boost consumption, including potential tax relief for the middle class, could provide upside triggers for growth across segments.
Metals:
The metal sector remained under pressure in February 2025, with mixed trends across ferrous and non-ferrous metals. Domestic hot-rolled coil (HRC) prices remained flat at ₹48,300 per tonne, reflecting limited demand as buyers opted for need-based purchases. In contrast, billet prices in Raipur saw a 1.9% week-on-week (WoW) increase to ₹40,100 per tonne, driven by improved buying activity in the semi-finished steel segment. Chinese HRC prices also increased 1.1% WoW to ₹41,506 per tonne, despite a declining trend in futures. Iron ore prices in Odisha remained steady at ₹7,000 per tonne, as several miners approached their environmental clearance extraction limits. Meanwhile, coking coal prices declined 0.7% WoW to $142 per tonne, reflecting weaker demand expectations amid potential steel production cuts in China.
The non-ferrous metal segment experienced broad-based declines due to global economic concerns and trade war fears. Aluminium prices fell 2.7% WoW to $2,621 per tonne, amid concerns over new US tariffs affecting global trade. Copper prices dropped 1.9% WoW to $9,338 per tonne, reflecting market worries over potential US import restrictions. Zinc prices declined 4.5% WoW to $2,763 per tonne, driven by a stronger US dollar and trade uncertainty. Other base metals, including nickel (-0.3%), lead (-0.4%), and tin (-7.3%), also saw declines.
Going forward, the metal sector is expected to remain volatile, with global trade policies, demand from key sectors, and supply-side constraints playing a crucial role. While infrastructure development and domestic consumption could offer some support, concerns over a global economic slowdown and geopolitical trade tensions may keep price movements uncertain in the near term.
Hospitality:
The hospitality sector continued its strong growth trajectory in February 2025, driven by seasonal demand from weddings and major cultural events such as the Kumbh Mela in Prayagraj, Ayodhya, and Varanasi. Average Daily Rates (ADR) saw a YoY increase of 18% in the lower price band and 12.6% in the upper price band, reflecting strong demand. On a month-on-month (MoM) basis, ADR rose by 25% and 5%, respectively. Cities like Bengaluru and Hyderabad, which had underperformed in previous quarters, saw a significant rebound in ADRs as corporate and leisure travel improved.
New hotel inventory expansion remained robust, with organized players continuing to add hotels primarily through management contracts and license agreements rather than owned assets, ensuring balance sheet flexibility. With sustained demand and increased focus on expansion, the sector is expected to maintain its growth momentum.
The Union Budget 2025 provided further tailwinds for the industry, as the government announced initiatives to develop 50 key tourism sites, expand regional connectivity under the UDAN scheme, and introduce performance-linked incentives for states to enhance tourism infrastructure. MUDRA loans for homestays, investment in medical tourism, and support for Buddhist tourism circuits are expected to further boost demand. Additionally, skill development programs in hospitality management will help strengthen the workforce and improve service quality.
Going forward, foreign travel is expected to pick up, supporting continued growth. With strong demand, rising ADRs, and government-backed initiatives, the sector remains well-positioned for long-term expansion.
Banking:
India’s banking sector remains on a stable trajectory, supported by strong economic fundamentals and structural improvements. As of February 2025, non-food credit growth stood at 11.3%, slightly below January’s 11.4% but an improvement from 11.1% in December 2024.
Sector-wise credit expansion has been led by the services and industry segments, with services credit rising to 12.5% YoY in January 2025 from 11.7% in December 2024. Loans to NBFCs showed an uptick, growing at 7.7% YoY, compared to 6.7% in December 2024. Credit flow to the industrial sector improved to 8% YoY from 7.2% in December 2024, while retail credit expanded by 11.8% YoY. Agriculture loans maintained steady growth at 12.2% YoY.
On the liabilities side, deposit growth improved to 10.6% as of 7th February 2025, up from 10.3% in January 2024. However, the credit-to-deposit ratio may remain under pressure, given that credit expansion is slightly outpacing deposit accumulation.
The Weighted Average Domestic Term Deposit Rate (WADTDR) rose by 2 basis points to 7.02% in January 2025, reflecting a marginal increase in deposit costs. Meanwhile, lending rates edged up, with the Weighted Average Lending Rate (WALR) on fresh rupee loans increasing by 7 bps to 9.32%.
The banking sector’s asset quality is expected to remain stable, with non-performing assets projected to decline to around 3.0% of gross loans by March 2025. This improvement is attributed to healthier corporate balance sheets and enhanced risk management practices. While retail loan underwriting standards remain strong, the rapid expansion of unsecured personal loans introduces some risk factors.
Credit costs, which fell to a decade-low of 0.8% in FY24, are likely to normalize within a 0.8%-0.9% range in FY25. Despite this, profitability levels should remain healthy, with return on average assets (RoA) expected to be around 1.2% in FY25.
The Reserve Bank of India (RBI) has intensified its regulatory oversight, particularly in areas of compliance and governance, which may increase compliance-related expenses for banks. However, these measures are expected to enhance overall financial stability. Additionally, the banking sector remains well-capitalized, ensuring adequate risk absorption capacity, while NBFCs and Urban Cooperative Banks continue to show resilience. Credit growth in FY25 is projected to be in the range of 11-13%, though a slowdown in unsecured lending, such as personal loans and credit cards, may moderate growth. However, the housing finance segment is poised for expansion, driven by the RBI’s 25 bps repo rate cut and government-backed affordable housing initiatives.
Going forward, FY26 is expected to witness further improvements in credit demand, supported by budgetary measures, economic expansion, and the restoration of pre-existing risk weight norms for MFIs and NBFCs. The sector’s long-term outlook remains positive, underpinned by robust economic activity, improved asset quality, and regulatory support.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- India’s GDP grew 6.2% year-on-year in Q3 FY25, up from 5.6% in the previous quarter but slightly below the 6.3% forecast. Growth moderated due to high energy costs, tight liquidity, and RBI’s restrictive policy.
- India’s GDP is projected to grow 6.5% in FY25, the slowest pace since the pandemic-induced recession in FY22, though slightly higher than the initial 6.4% estimate.
- India’s manufacturing PMI fell to 56.3 in February 2025, the slowest since December 2023 but still strong, driven by robust demand and near-record job creation.
- India’s deposit growth rose to 10.6% as of Feb 2025, up from 10.3% in January.
- The HSBC India Services PMI was revised to 59.0 in February 2025, above January’s 26-month low of 56.5 and market expectations of 57.3, indicating continued growth for the 43rd straight month.
- The HSBC India Composite PMI stood at 58.8 in February 2025, down from the flash estimate of 60.6 but above January’s 57.7, marking 43 months of expansion. Services growth picked up, while manufacturing hit a 14-month low.
- India’s infrastructure output grew 4.6% YoY in January 2025, down from 4.8% in December. Growth slowed for coal, steel, and electricity, while crude oil and natural gas declined. However, refinery products, fertilizers, and cement saw stronger growth.
Fundamental outlook:
India continues to cement its position as one of the world’s fastest-growing economies, with GDP expected to expand by 6.5% in FY25. This growth is underpinned by sustained consumer spending, aggressive infrastructure expansion, and a government-led capex push. Structural shifts, including RBI’s anticipated rate cuts, ample liquidity measures, and a budgetary boost to consumption, indicate that FY26 could witness even stronger momentum. However, near-term risks such as global trade disruptions and stretched equity valuations could pose challenges.
Corporate earnings remain resilient, with nearly 70% of NIFTY 50 companies meeting or exceeding Q3FY25 expectations. However, sectoral disparities persist—while consumption-driven businesses continue to thrive, cyclical sectors, particularly commodities and industrials, have weighed on overall earnings growth, which is projected at 5.3% for FY25 (8.5% excluding Oil & Gas). The outlook for FY26 appears more promising, supported by base effects, increased government spending, and a broader consumption revival.
Investment dynamics are evolving, with private corporates shifting focus towards intellectual property, innovation, and digital assets instead of conventional capital expenditures. Meanwhile, rising household savings and a surge in retail equity participation continue to fortify market liquidity. SEBI’s tighter regulations on F&O trading have curtailed speculative excesses, fostering a more balanced market environment.
India’s bond market has remained relatively stable, with 10-year yields fluctuating between 6.47% and 7.13%, reflecting RBI’s prudent liquidity management. As inflation moderates and rate cuts become more probable in 2025, borrowing costs are likely to ease, further bolstering economic expansion.
Technical outlook.
Indian equity markets have witnessed heightened volatility in 2025, reflecting a tug-of-war between bullish optimism and macroeconomic uncertainties. While high-frequency indicators signal steady growth, there are signs of moderation—the HSBC Manufacturing PMI eased to 56.3, and the Composite PMI settled at 58.8, both still indicating expansion but at a slower pace. Meanwhile, the Services PMI rebounded to 59.0, underscoring resilient domestic demand. Auto sales have held firm, and robust GST collections continue to reinforce economic momentum.
Despite these positives, investor sentiment remains cautious, with Nifty struggling to break key resistance at 23,000, facing an even stronger barrier near 23,500. On the downside, immediate support is placed at 21,900, with a crucial safety net at 21,500. Liquidity conditions have improved, but external headwinds, including global economic shifts and the upcoming corporate earnings season, will heavily influence market direction.
Given the current landscape, the market is likely to remain range-bound in the near term, with a slight upward tilt contingent on global cues and domestic earnings strength. Any decisive breakout above resistance levels could trigger fresh upside momentum, whereas a breach of key support zones may invite deeper corrections.
Outlook for the Global Market
US Market:
As of February 28, 2025, the US stock market was trading at a slight 1% discount to fair value, marking the first time in a year that equities have not been overvalued. However, this shift comes after an extended period of elevated valuations, where the market had been at the upper end of its fair value range. Historically, such premium levels have been rare, occurring less than 10% of the time since 2010. Given this backdrop, a cautious approach remains prudent, as the market’s upside appears limited while risks remain prevalent.
A notable trend this year has been the divergence between value and growth stocks. Year-to-date through March 3, 2025, the Morningstar US Value Index has gained 5.54%, while the Morningstar US Growth Index has declined 3.81%. Growth stocks have been trading at their highest premium since the speculative tech rally of early 2021, making them particularly vulnerable as economic conditions soften. On the other hand, value stocks remain attractively priced, and the ongoing rotation into value-oriented investments still has further room to run.
Economic data for early 2025 has been weak, with multiple indicators pointing to a slowdown. Retail sales, auto sales, housing, and manufacturing all saw declines in January, impacted by severe winter storms, LA wildfires, and a bad flu season. Additionally, federal spending cuts have started to weigh on employment, pushing up jobless claims as government headcount reductions and suspended payments to federal programs take effect. This could lead to a cumulative hit of 250,000 to 500,000 jobs in the coming months. Consumer sentiment has also deteriorated, particularly among Democrat-leaning consumers, whose confidence levels are now at their lowest since 2008.
While inflation had been moderating entering 2025, new pressures have emerged. Tariff increases announced in February and March are projected to have a significant impact, equating to a tax hike of 0.5% to 1.0% of GDP, which could translate into higher consumer prices in 2025 and 2026. Additionally, rising costs for gasoline, diesel, natural gas, and food—particularly due to the avian flu affecting poultry—pose further risks to price stability. Despite market expectations of aggressive rate cuts, the Federal Reserve has maintained a cautious stance, keeping rates steady in January and signaling that it is in no rush to ease policy. With inflation expected to remain above the Fed’s 2% target, the central bank is forecasted to cut rates by only 0.25% by year-end. Furthermore, the Fed is set to end its balance sheet reduction program (QT) in July, which could provide some liquidity relief but is unlikely to change the broader outlook.
Given these dynamics, caution is warranted. With valuations still on the expensive side and economic headwinds persisting, investors should prioritize quality stocks and lean towards value-oriented investments while maintaining a defensive positioning in the near term.
Outlook for Gold
Gold prices have been fluctuating recently, driven by trade tensions following former US President Donald Trump’s tariff policies. The focus is now on the upcoming US employment data, which will provide clarity on the Federal Reserve’s interest rate outlook. Meanwhile, the US Dollar Index has declined by 1.39% to a three-month low, supporting an upward bias in gold prices.
On 6th March 2025, gold prices in India saw a broad decline. The price of 22-carat gold fell by ₹450 per 10 grams to ₹80,200, while 24-carat gold dropped by ₹490 to ₹87,490 per 10 grams. Similarly, 18-carat gold declined by ₹370, bringing its price to ₹65,620 per 10 grams. For larger quantities, 100 grams of 24-carat gold is now priced at ₹8,74,900 after a ₹4,900 drop, while 22-carat gold stands at ₹8,02,000 following a ₹4,500 reduction. Likewise, 18-carat gold dipped by ₹3,700 to ₹6,56,200 per 100 grams.
Gold is expected to maintain its upward momentum, with the potential to test the $2,935 level as the dollar weakens and safe-haven demand rises. Recent US economic data signals a slowdown, and a trade war with key partners could further weigh on growth, increasing the likelihood of Federal Reserve rate cuts. Market expectations have now priced in rate reductions this year, exceeding earlier projections. Additionally, key economic data releases and the European Central Bank’s monetary policy stance remain crucial factors, with potential rate cuts on the horizon. In the near term, spot gold is likely to find support around $2,890 and could move higher towards $2,935.
What should Investors do?
With most key events now behind us, the market focus shifts to global developments, including US policy changes, reciprocal tax updates, potential Fed rate cuts, and movements in currency and oil prices. Domestically, attention remains on India’s interest rate trajectory, with another RBI rate cut anticipated this year.
We expect some further downside this month, primarily driven by loss harvesting and the potential unwinding of futures positions. The recent correction has already erased earlier gains, bringing market returns to a flat level on a one-year basis. Given this backdrop, near-term consolidation is likely, with market breadth expected to remain narrow. Nifty is currently trading at 18.1x on a 12-month forward earnings basis, slightly below its five-year average but in line with its 10-year trend, making large caps relatively more attractive compared to the broader market.
With no strong positive triggers in the immediate term, the market may continue to see some time correction. Large-cap quality stocks, monopolies, and market leaders are expected to hold up better, while high-beta and momentum stocks should be avoided for now. Additionally, earnings growth risks persist in Capex-driven and export-oriented sectors. Despite near-term challenges, our long-term outlook remains constructive, supported by increased government spending and improving credit growth. However, for this month, caution is warranted, and a selective approach focusing on ‘Growth at a Reasonable Price’ and ‘Quality’ remains the best strategy to navigate ongoing volatility
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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