Investors should to adopt a well-rounded strategy that incorporates both strategic opportunism and rigorous risk management. Up until the middle of March, Indian markets were down due to FII outflows totaling over Rs. 1 lakh crore, earnings downgrades, and uncertainty surrounding global tariffs. Investors should spread their money across different growing industries with strong and stable stocks. When the market dips, it can be a good time to buy undervalued stocks, especially in areas supported by government policies, like infrastructure and consumer goods. Safe industries such as healthcare, utilities, and daily essentials, along with fast-growing sectors like defense, renewable energy, and health tech, offer good long-term returns. However, investors should also be cautious about risks like US trade policies, global conflicts, and climate issues. To get the best returns, they should focus on India’s strengths, such as its young population and rapid digital growth.

The recent tariff changes in the United States, which include a 25% levy on automobiles (effective April 3) and auto parts (by May 3), as well as increased steel/aluminum duties and threatened sectors such as pharmaceuticals and semiconductors, have caused market volatility. Tariffs are expected to disrupt global trade flows, and we anticipate that the full impact will occur in FY26. Textiles, agriculture, and chemicals sectors may benefit from India capturing export market share as US buyers seek alternatives to Chinese (20% tariffs), Mexican, and Canadian goods.

Engineering goods exporters may benefit from redirected demand, especially in machinery and electrical equipment, where India's exports to the United States increased 12% year on year in 2024. Domestic steel producers may benefit from lower Canadian import tariffs (10% vs. 25% for others), while exporters face headwinds from potential EU counter-tariffs on steel-intensive products. 

Portfolio Diversification and Investment Themes

Persistent strength of the US dollar, reaching two-year highs, coupled with significant FIIs selling had triggered a bearish sentiment in the Indian markets. FIIs have sold over Rs.3 lakh crores in the Indian market since October 2024. This trend is exacerbated by rising US bond yields, which hover around 4.6%, making dollar-denominated assets more attractive compared to Indian equities, thus prompting FIIs to withdraw investments.

To navigate these trends, domestic investors should adopt strategic approach of portfolio diversification in term of sector or market cap diversifications. Diversification into different asset class like Gold and Silver could be a good approach. Investment in growing sectors like renewable energy, EV sector, healthcare sector, infrastructure development sector, etc., can be a good approach for investor to counter FIIs selling.

Crude oil prices have recently experienced a notable decline, impacting various sectors significantly. In March 2025, crude oil prices fell by ~6%. Oil Marketing Companies (OMCs) such as IOCL, BPCL, and HPCL will get benefitted from reduced procurement costs, which enhanced their profit margins as they could either lower fuel prices for consumers or retain savings to boost profitability. The aviation sector also gained from lower jet fuel costs, allowing airlines like IndiGo and SpiceJet to reduce operational expenses, potentially increasing demand for air travel. Additionally, the paint industry also got benefited as falling oil prices lowered production costs for key materials, benefiting companies like Asian Paints and Berger Paints. Crude oil prices may remain range bound providing much needed breather to above sector's which can form tactical part of asset allocation.

In the current volatile market environment, characterized by a significant correction and economic uncertainties, investors must strategically balance their exposure between large-cap, mid-cap and small-cap stocks to optimize returns while managing risk. Large-cap stocks, having better stability and lower volatility, should constitute a substantial portion of an investor's portfolio, normally 50-60% for moderate risk profiles. Mid-cap stocks can offer a mix of growth potential and moderate risk, suggesting an allocation of 30-40%, while small-cap stocks, which tend to be more volatile but have shown remarkable returns in bullish conditions, should be given 10-20%. As market conditions fluctuate, adjusting these ratios dynamically becomes crucial, with increasing small-cap exposure during anticipated recoveries can capture higher returns, while shifting towards large-caps in bearish phases can protect against steep losses. However, these allocation varies depending upon investor's risk profile and risk taker's may find these levels comfortable to build portfolios in small/mid cap again.

India’s economy remains strong despite short-term ups and downs in the market. The country has a controlled fiscal deficit and moderate inflation, creating a solid base for long-term growth. Although GDP growth has slowed, it is expected to recover, with a projected 6.5% rise in FY25. Investors should keep an eye on important factors like tariff policies, US economic trends, and corporate earnings, as these can affect market movements.

Sectors such as infrastructure, consumer goods, banking, and technology are expected to do well, supported by government policies and strong economic activity. A hybrid approach, increasing equity allocations during market correction and diversifying into fixed income, gold, and real estate are also recommended. Despite high valuations, domestic demand and increasing retail participation are likely to support the market in the next 12-15 months.

About the Author

Achin Goel has been associated with Bonanza Portfolio Limited since 2009. Throughout his tenure, he has taken on various roles, significantly contributing to the company's growth. He previously served as the Country Head for Online Broking, where under his leadership, the segment experienced double-digit growth year on year. From 2012 to 2019, Mr. Goel was instrumental in managing the fundamental, technical, and system-based research desk at Bonanza, overseeing a team of more than 10 research analysts. Currently, he serves as the Vice President of Bonanza Portfolio Limited, leading the Portfolio Manager services. Additionally, he is responsible for the Debt Desk of the company.