March 2025: FY2025 – a tale of two halves

The financial year FY2025 was a story of two halves for the market. In the first half, the Nifty climbed 15.6% and was close to its peak on 30 Sep 2024. The Nifty Midcap Index climbed 25.6% in this period and the Nifty Small Cap index was up 28.5%. The journey from 30 Sep 2024 to 31 March 2025, was a reverse of the first half and the Nifty fell 8.9% during this period and the Midcap and Small Cap Indices were down 14.3% and 18.0% respectively. For the whole year, the Nifty was up 5.3%. For the month of March 2025, the Nifty was up 6.3%.

We have spoken in the past about the high valuations in certain pockets of the market, especially the mid-caps and the small caps. We now observe the internals of the market over the last 6 months. The table below shows how the constituents of the BSE500 performed from 30 Sep 2024 to 28 Feb 2025, then the performance for the month of March and then finally the performance from 30 Sep 2024 to 31 March 2025. We have placed all the stocks into different buckets depending on how they performed up to 28 Feb 2025.

It is quite interesting that irrespective of how much a stock fell (or even gave a positive return) from Sep 24 to Feb25, the rise in March is roughly the same – in the 6.5% to 8.5% range. This is surprising because like in a tennis ball, the harder something falls, the more it should bounce. The performance from Sep 24 to Mar 25 is therefore quite stark for the different buckets in the table above. We have been saying for about a year that the valuation of the market constituents is quite high. It appears that some sort of reality has set into the market. Those who are stuck in these overvalued stocks are not getting an opportunity to exit, as the mood of the market has changed.

Besides the valuations, what has spooked the markets in recent times is poor corporate growth. As the March 2025 quarterly results are announced over the next 2 months, we will get some idea of whether there is some improvement in results after a tepid show over the last 2 quarters. We have used the opportunity provided by the market dip to utilize some of the cash in the portfolio to buy high quality companies that we believe are trading at reasonable valuations. We have no way to predict stock prices over the short term, but we believe that if we buy good companies at reasonable prices, we increase our odds to generate a good outcome within the range of probabilistic outcomes for the market.