A perfect storm blew over the markets in April and early May. It started on 2nd April when President Trump declared his highly controversial ‘reciprocal tariffs’ on America’s trading partners. Financial markets had discounted an increase in tariffs but never anticipated a steep increase in tariffs, which turned out to be neither reciprocal nor logical. Consequently, stock markets crashed globally. But the Trump administration got an unexpected jolt from the bond market which forced the president’s team to quickly pause the ‘reciprocal tariffs for 90 days. Stock markets staged a dramatic recovery. India turned out to be one of the best performing markets with a 2.3 percent surge in Nifty on 11th April. Meanwhile, the trade war between the US and China aggravated to absurdly irrational levels, with the US imposing 145 percent tariffs on Chinese imports and China hitting back with 125 percent tariffs on US imports. International agencies downgraded global growth for 2025, discounting the impact of the trade war on global growth.
When the situation was limping back to normalcy, the Pahalgam tragedy happened. Stock market quickly discounted a strong retaliatory strike by India, but not an extended conflict. But when a retaliatory strike happened and the conflict got worse than anticipated, the market briefly panicked but quickly recovered when a ceasefire was declared. Assisted by the morale boost delivered by the stellar performance of the Indian defense forces, Nifty rallied like a rocket on 11th May, delivering a stunning 3.82 percent return. The broader market rallied above 4 percent. This rally was the best in four years and has delivered impressive returns to investors.
These crises and the consequent market turbulence reinforce the market wisdom that it is impossible to time the market and, therefore, the ideal strategy is to spend time in the market. Markets have an uncanny ability to surprise. Sharp upturns in the market happen at totally unexpected times. These recent crises have once again proved that investors should not panic but remain calm. Fortunately, this time, retail investors did not panic. They continued to invest systematically. The latest AMFI data shows that the proportion of long-term SIP investors is steadily rising. As of March 2025, SIP accounts held for more than five years were 33 percent for regular plan SIPs and 19 percent for direct plan SIPs. Five years ago, this ratio was only 12 percent and 4 percent, respectively. A very healthy trend, indeed. Monthly inflows into SIPs have been above Rs 26,000 crores for four months in a row. The total number of contributing SIP accounts have increased to 81.1 million in April 2025 from 63.8 million a year ago. We have a long way to go.
As we have emphasized repeatedly, India is at an inflection point in her growth and emergence as an economic powerhouse. We are already the fourth largest economy in the world and are set to become the third largest by 2027-28. Barring unforeseen circumstances, we will be an $8 trillion economy by 2032 with a market cap above $9 trillion. Importantly, Indian stock market has been the second-best performing market in the world during the last 10 years. Because of the bright prospects for the Indian economy and markets, India will continue to attract premium valuations. Therefore, high valuations need not be a deterrent to long-term investing. The best way to manage the valuation conundrum is to invest systematically, which helps in cost averaging.
