Tuesday’s relief rally over, tariff jitters and RBI policy back in focus

Still, market experts said investors would do well to take this single-day bounce with a pinch of salt, as tariff-driven jitters continue to keep volatility on a short fuse.

Markets may remain choppy until India has more clarity on the US tariff situation, experts added. Adding to the uncertainty, the Reserve Bank of India’s upcoming monetary policy committee outcome could inject fresh swings into the market, especially with the weekly derivatives expiry lurking close.

The central bank is slated to announce its policy decision on Wednesday, with expectations tilted towards a 25 basis point rate cut, which was one of the key drivers lifting the market. That said, some experts said a deeper 50 basis point cut wouldn’t come as a surprise given the current macroeconomic situation.

On Tuesday, the Nifty 50 closed 1.7% higher at 22,535.85 points, while the Sensex climbed 1.5% to settle at 74,227.08. The broader market joined the party, with the Nifty Midcap 100 and Smallcap 250 rallying 2.1% and 2.2%, respectively.

All sectors wrapped up Tuesday’s session on a positive note on NSE, with Nifty Media leading the charge with a nearly 5% rally, setting the tone for a broadbased recovery.

“The markets recovered on short covering and hope of a last-minute announcement deferring tariffs for a few months as negotiations get underway between US and its trading partners,” said Jyoti Jaipuria, founder and managing director, Valentis Advisors.

Also read | Tuesday’s market recovery offers little solace. Ask India’s fear gauge.

Wild swings ahead

That a large part of gains on Tuesday were on account of short covering was evident in cash market volumes. Cash market volumes on NSE stood at ₹94,248.45 crore as of 4 pm, per NSE. This was below March’s average daily volume of ₹98,693 crore and this month’s ₹96,305 crore so far.

Meanwhile, the sharp 10% drop in India VIX on Tuesday, after a staggering 65% surge on Monday, captures the wild market swings investors could be in for.

“With all the market volatility, valuations have cooled off to more reasonable levels—offering some comfort to investors,” said Kenneth Andrade, chief investment officer at Old Bridge Mutual Fund, and founder-director of Old Bridge Capital Management.

Andrade believes it is too early to tweak strategies in response to the current volatility, but sees this as a constructive time to add equities, noting that the market is in a better place than it was three months ago.

A further recovery, he said, would hinge on a breakthrough in India’s tariff negotiations with the US—which may take time—and increased likelihood of rate cuts from global central banks.

Also read | RBI prepares for Trump tariff fallout with liquidity moves

Foreign investors still fleeing

Foreign institutional investors have been on a selling spree since 2 April, offloading Indian equities worth ₹16,078 crore over four straight sessions, showed NSDL data. In contrast, domestic institutional investors have stepped in as steady buyers, pumping in ₹13,432 crore during the same period.

FIIs continued to offload shares on Tuesday, dumping ₹4,994 crore, while DIIs came to the rescue with ₹3,097 crore in net purchases, BSE data showed.

Also, while a stable rupee could be a big draw for foreign investors looking to come back to India, the currency extended its slide for a second straight session on Tuesday. The rupee fell 40 paise during the day to close at 86.25 against the US dollar—its weakest finish since 20 March.

But market watchers say the current cloud of uncertainty might actually turn into a silver lining—foreign investors might look to lighten up on US stocks and shift capital toward other markets, with India emerging as a strong contender for increased allocations.

Also read | Invest in domestic businesses to insulate portfolio from uncertainty

What’s key, according to Mihir Vora, CIO at TRUST Mutual Fund, is that US equities—typically seen as a safe haven and making up 65% of global allocations—could lose some shine. “And if that happens, markets like Japan, China, and India may emerge as the next destinations for foreign inflows,” he said.

Over the past year, China’s CSI and Hong Kong’s Hang Seng have left the Nifty 50 in the dust—rising 3% and 20% respectively, while India’s benchmark index has stayed mostly flat.

Also read | Tariff gut punch sends markets reeling worldwide

Choose your sectors

While India will not be insulated from a global slowdown, a softer US economy could prompt central banks to turn dovish, boosting liquidity, Vora said, adding that he sees the current situation as a good opportunity to increase equity exposure.

“The real question is—when does this tariff uncertainty settle? It could turn around in a week if Trump backs down. It’s essentially a game of who blinks first,” Vora said.

Meanwhile, stock-specific moves will likely be driven by March-quarter earnings and management commentary.

Kotak Institutional Equities in a report dated 6 April said it expects a muted earnings season, projecting a 0.7% year-on-year rise in net income for the fourth quarter of 2024-25, “with most sectors likely reporting weak prints”.

The brokerage expects weak earnings growth from banks due to net interest margin compression, for commodity chemicals due to soft demand, for construction materials companies due to lower realizations, for consumer staples firms due to weak urban demand, and for oil and gas explorers due to poor refining margins.

Some other sectors are expected to fare better—diversified financials due to strong loan growth, healthcare services on rising footfalls, metals and mining firms due to higher base metal prices, and telecom companies due to improved per-user revenue, the report added.

For now, investors might want to steer clear of globally exposed sectors such as information technology, pharmaceuticals, and metals, and instead lean into domestic economy-linked plays, market experts said.

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