Tale of markets in FY25: Profitable first half undone by volatile second

A stark contrast defined the two halves of the domestic equity market in 2024-25 (FY25). An upbeat performance marked the first half, while the second half saw a sharp decline and heightened volatility. 

The Sensex climbed  14.5 per cent during the first six months of the financial year. This was accompanied by low volatility, with the 30-share index recording just 19 sessions with fluctuations of 1 per cent or more. 

In contrast, the second half painted a starkly different picture, clouded by economic uncertainty, earnings concerns, and global 

challenges. 

The Sensex is down 8.8 per cent so far in the second half. Volatility has also surged, with 27 trading sessions seeing gains or losses of 1 per cent or more. 

This turbulence began after the Sensex and Nifty hit all-time highs in late September. A post-pandemic equity rally had pushed valuations to lofty levels, which became unsustainable as corporate earnings weakened in the July-September and October-December quarters. 

Foreign portfolio investors (FPIs) exacerbated the downturn, turning net sellers in five of the past six months. Initially, this selling stemmed from capital reallocation to China, lured by attractive valuations and government stimulus measures. 

Donald Trump’s victory in the US presidential election led to further foreign capital outflows. Concerns over potential shifts in US trade policy drove US bond yields higher and strengthened the dollar, prompting foreign portfolio investors to pull back from emerging markets like India. 

After Trump’s inauguration, the imposition of trade tariffs intensified investor unease, accelerating a shift from risk assets to safe havens like gold. Over the past six months, gold prices have surged 15.3 per cent to $3,039 per ounce, while the dollar index has risen 3.1 per cent to 103.9. The 10-year US bond yield climbed 40 basis points to 4.2 per cent. 

 

In the second half of FY25, the Sensex fell 8.8 per cent, and the Nifty dropped 9.5 per cent. Broader indices faced steeper declines, with the Nifty Midcap 100 and Smallcap 100 plunging 13.8 per cent and 15.6 per cent, respectively. 

“The market crash in the second half was rare in its magnitude,” said Chokkalingam G, founder of Equinomics Research. “The deep cumulative fall gave investors hope of a bottom, triggering buying at every dip. This explains the spike in volatility, though collective fear has overshadowed fundamentals in the past six months.” 

Experts expect these sharp swings to ease. “Sharp falls often lead to equally sharp rebounds,” said Ambareesh Baliga, an independent equity analyst. “But over the next few months, these fluctuations should subside as markets settle into a more listless phase.”