Calm after the storm: Equity market sees fewer wild swings in H2CY25

30 big swings in H1, just 3 in the second half

Indian equity markets have moved from turbulence to relative calm this year. In the first half, the Sensex and the Nifty saw intraday moves of 1 per cent or more on 30 and 32 occasions, respectively. In the second half, which is now nearing its end, there have been only three such sessions for the Sensex and four for the Nifty.

 

Market participants attribute the heightened volatility in the first half to earnings disappointments and global uncertainty over US trade policy. In the second half, the absorption of adverse news, improving earnings visibility and steady domestic institutional investor (DII) flows have brought greater stability to the markets.

 

“There was a sharp decline in the first two months, followed by a strong rebound in the subsequent months of the first half. But in the second half, the markets have largely moved sideways. We did touch a new high, but the gains were marginal compared to the levels seen in the first half,” said independent equity analyst Ambareesh Baliga. 

 

“When indices rise gradually, volatility tends to be lower. There have been no strong trigger points. June-quarter earnings were weak, while September-quarter results were a positive surprise — but expectations were already low. The US treaty did not materialise.” The US imposed a punitive 50 per cent tariff on Indian goods in August, and negotiations for a trade deal have since failed to make progress.

 

“The market has largely reconciled itself to the 50 per cent US tariff and is stuck in a tight range because there is no major news flow to drive large moves,” said U R Bhat, cofounder of Alphaniti Fintech.

 

“But such narrow ranges often act as a precursor to a sharp move in either direction. This could be a lull before the storm.”

 

Bhat added that policy measures like the goods and services tax (GST) rate cuts and interest rate reductions by the Reserve Bank of India (RBI) failed to excite investors, as they came after the tariff shock and merely cushioned its impact. Elevated valuations have also encouraged investors to book profits on modest rallies. The Nifty’s one-year forward price-to-earnings multiple stands at around 20.5, still above its five- and 10-year averages.

 

“No one is aggressively bullish or bearish. Investors are simply rotating within a narrow band,” Bhat said.

 

The surge in initial public offering (IPO) activity in the second half has also drained liquidity from the secondary market.

 

Interestingly, foreign portfolio investor (FPI) selling was higher in the second half at ₹85,000 crore, compared with ₹72,000 crore in the first half. However, DII flows were also stronger in the second half, at nearly ₹4 trillion, versus ₹3.5 trillion in the first half.

 

“It is largely FPI selling and DII buying that is preventing indices from falling sharply,” said G Chokkalingam, founder of Equinomics Research. “Even when domestic institutions buy more than FPIs, their ability to trigger a sustained rally is limited compared to foreign flows. Moreover, the IPO boom in the second half has led to a diversion of funds from the secondary market by both domestic and foreign institutional investors. This trend is likely to persist till March, as the IPO pipeline remains strong.”

 

Market participants say a decisive breakout from the current range will require positive surprises on both the trade and earnings fronts.

 

“Assuming some kind of settlement on the trade front over the next few months, and corporate results meeting or marginally exceeding expectations, markets could deliver returns of 10-11 per cent,” Bhat said.