Indian equity markets rebounded sharply on March 18, with the Sensex surging 1,131 points and small- and mid-cap indices gaining over 2%, breaking a week-long losing streak. All sectors ended in the green, signaling a relief rally. However, market experts remain cautious, attributing the surge more to sentiment than fundamentals.
As of 11:15 AM on March 19, the Sensex was trading at 75,461.20, up by 0.21%, while the Nifty rose 0.26%. Market breadth was positive, with 2,881 stocks advancing and 871 declining.
Despite this surge, analysts have warned of possible corrections in the future. “We were in the oversold zone for many stocks, and today’s gains were largely technical,” said Aishwarya Dadhich, founder and CIO of Fidant Asset Management.
Data from the derivatives markets showed that the 1,100-point recovery in the Sensex on March 18 was driven by massive short-covering by foreign institutional investors (FIIs) after a month of relentless selling. Exchange data revealed that 101 out of 220 stocks in the futures and options (F&O) segment saw short-covering by FIIs. In the cash segment, FIIs were net buyers, purchasing equities worth₹1,463 crore.
However, caution persists. Guarang Shah, Head Investment Strategist at Geojit Financial Services, remarked, “The recovery is decent, but global headwinds persist.” The US market closed lower on March 18, with the S&P 500 falling 1.07% and the Nasdaq declining 1.71%, reflecting broader concerns over tariff policies and economic uncertainty.
FOMC in Focus, but Tariff Uncertainty Weighs Heavily
Investors are eagerly awaiting the outcome of the FOMC meeting, although market watchers do not expect any change in interest rates. Instead, tariff uncertainties are drawing more attention due to their potential impact on inflation. “Markets are also very focused on the uncertainty of tariff negotiations to assess their impact on inflation in the coming months amid the much-awaited Fed announcements,” said Ajit Mishra, Senior Vice President, Research, Religare Broking.
Small- and Mid-Caps Remain Fragile
Despite the bounce, small- and mid-cap stocks remain in a volatile situation. The broad market decline since September 2025 has wiped out nearly a year of gains for 50% of the BSE midcap and smallcap components, which are now down a quarter from their three-year highs. Both indices are currently trading 20-23% below their peaks.
Mishra emphasized the current weakness: “It is too early to call this a trend reversal. Small and mid-cap stocks remain weak, and sustained buying by FIIs will be needed to confirm sustainability.”
FIIs: Will They, Won’t They?
Amid the volatility, a positive sign is the weakening of the US dollar index, which has fallen to 103 from its highest level since November 2024 of 110, indicating a possible shift in capital flows towards riskier assets. “As US exceptionalism on growth and stock prices fades, flows will move towards emerging markets, and India will benefit—but it may take until May or June to materialize,” said Ajay Bagga, chairman, Elements Platform.
Meanwhile, emerging markets are seeing a revival in foreign investment. Investments in Hong Kong funds rose to a record $1.6 billion, while Chinese funds saw the most inflows in five months at $926 million. Capital has also flowed back to markets such as South Korea, Taiwan, Brazil, Mexico, Indonesia, Thailand, Singapore, and Malaysia in the past three weeks.
However, India remains the only major emerging market still experiencing outflows, albeit at a slower pace. According to the Elara Global Liquidity Tracker, outflows from Indian equities declined to $113 million this week, well below the average weekly outflow of $460 million since the start of 2025.
Sectoral Trends and Institutional Moves
Among mid- and small-caps, infrastructure, capital goods, and real estate led the recent rebound. However, experts believe that IT and pharma may emerge as medium-term gainers, despite current selling pressure.
Institutional flows have been selective. A February report by Motilal Oswal highlighted that mutual funds increased their holdings in private banks, NBFCs, healthcare, telecom, and metals while trimming stakes in capital goods, technology, autos, and PSU banks.
In mid-caps, inflows favored Yes Bank, IDFC First, Prestige Estates, and AU Small Finance, while small-cap buying activity was concentrated in Happiest Minds, Signature Global, and Glenmark Pharma.
