Equity Monthly View for March 2025

Source: Bloomberg

After five months of decline, Sensex ended March 2025 with + 5.7% returns. Small-cap and Mid-cap also participated in the rally and were up 7.6% and 8.2% respectively. Rally was broad based across sectors, the only laggard being IT Services sector. Potential slowdown of global economy due to tariff imposed by the U.S. weighed on IT Services sector. Among the sectors which did well during the month are Power Utilities, Capital Goods, Energy, Metal and Banking. The bounce is on the back of several months of declines and gradual recovery in capex activity. The banking sector did well on regulatory easing. Since the past two months RBI has been gradually easing on the policy front; this includes liquidity injection and decrease in risk weights for certain segments. Globally, the US Federal Reserve maintained status quo on interest rates. Rate cut trajectory will depend on tariff impact on U.S. growth and inflation targets.

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 3.9% in its NAV in the month of March 2025; Tier-I Benchmark BSE 500 TRI and Tier-II Benchmark BSE 200 TRI increased by 7.3% and 7.1% respectively. Finance and IT sectors were the drags in the portfolio. During the month, we continued to deploy pockets such as Utilities, Finance and Auto-Ancillaries. Cash in the scheme at the end of the month stood at 11.2%. We continue to believe the large-cap liquid portfolio are now fairly valued, but the small and mid-cap continue to trade expense where caution needs to be exercised.

Among the other major developments, U.S. President Donald Trump in an unprecedented move imposed adverse reciprocal tariffs on all trading partners with U.S.. This is a major dislocation whose impact would weigh on global growth. While these tariffs will have several implications across the globe, India is relatively less impacted compared to other trading partners. Some of the key highlights from India’s perspective are as follows:

Analysing Trump Tarriff:

• India’s total export of goods to U.S. stands at ~ $ 80bn per annum. U.S. has imposed 26% tariffs on India’s exports to U.S.. While it is high on headline basis, it is in lower band versus other emerging market peers.
• India’s primary exports to the U.S. includes pharmaceuticals, telecom equipment, gemstones, petroleum products, gold jewellery, and ready-made cotton garments. Out of these, pharma (~10% of goods exports) and petroleum products (~7% of goods exports) are not subject to tariffs.
• India's electronics, gems and jewellery sectors will be worst affected with 26% tariff. India exports $14bn worth of electronics and over $9bn gems and jewellery. Prior to this hike, U.S. tariffs on Indian electronic goods averaged just 0.4%, while jewellery and gem products faced duties of around 2%.
• India is in the process of lowering tariffs through bilateral trade agreements with U.S.. U.S. could reciprocate with lower tariff rates as bilateral trade agreements fructify.

Key Sectoral Impact:

• Auto/Auto-Ancillary and Metals: Large Indian Original Equipment Manufacturers (OEM) have very limited exposure to U.S. barring one large company which owns global luxury brand. Select auto ancillaries may face headwinds, as they have 5-40% sales to U.S.. Ability to pass on the cost to U.S. consumer is limited to segments where pricing power remains high.
• Textile: Textile industry will face pressure on margin as big box retailers negotiate for lower prices. However, competing countries like China, Vietnam and Bangladesh have higher tariff levy which can make India more competitive.
• IT : There is no news of Tariff on IT sector. However, IT may face second order effect from slowdown in developed markets including U.S. and Europe, their largest exposure.
• Chemical: Reciprocal tariffs are clearly negative for the chemical industry in general. End industry demand such as auto, energy, FMCG etc. may be lower, impacting overall chemical volume offtake. There can also be margin pressures owing to inability to pass on the cost increases. Tariff imposed on other large exporters such as China and Taiwan is much higher than on India, this can potentially help India make further inroads into U.S. but competition outside of U.S. markets can be fierce.
• Pharmaceuticals: Pharmaceuticals have been exempted from tariff for now, but it remains to be seen whether they will attract sector specific tariffs in future. We expect pharma to face lower tariff as cost to manufacture generic pharma products is much higher in U.S. and doesn’t involve high value addition.

What should investors do?

In our view, with the correction in markets over the past several months, large-caps are now fairly valued, but the small and mid-cap continue to trade expensive. The key near term risk is the impact of Trump tariff on Indian and global economy. Thus, investors should maintain the right asset allocation at all points in time and prudently invest towards equity.

Source: Bloomberg, Ministry Of Commerce

Name of the Scheme	This product is suitable for investors who are seeking*	Scheme Riskometer	Benchmark Riskometer (Tier I) - BSE 500 TRI & (Tier II) - BSE 200 TRI
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy.	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in BSE 200 index

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Above article is authored by Quantum.

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