The financial markets have experienced a rollercoaster ride in early 2025, with a sharp correction triggering mass anxiety among investors. In an extensive monthly video update in March 2025, an experienced market analyst dissected the causes of this slump, its far-reaching implications, and the encouraging signs of recovery. This article explores the specifics, providing guidance for investors going through these rough times.
What Sparked the Market Correction?
The origin of the correction can be traced back to September 2024, with a steeper decline initiating in January 2025. The main catalyst? A visible deceleration in the Indian economy in Q2 and Q3 of 2024. The economic slowdown, linked to lower capital expenditure (capex) due to election-related uncertainties, pulled down corporate earnings growth—a prime driver of market performance.
Referring to the NC 500 earnings path, the analyst pointed out a drastic trend:
| Quarter | Earnings Growth (%) |
|---|---|
| Q3 2024 | 27% |
| Q4 2024 | 13.2% |
| Q1 2025 | 4% |
| Q2 2025 | -1.3% |
| Q3 2025 | 8.5% |
Having peaked at 27% in Q3 2024, earnings growth plummeted to -1.3% in Q2 2025 before modestly recovering to 8.5% in Q3. This seesaw mirrors the economic slowdown’s effect. Excluding volatile industries such as oil, gas, metals, mining, and commodities, however, the earnings downturn was less dramatic, remaining in double digits for Q1-Q3 2025. This indicates that although the overall market was hit, core industries were resilient.
The correction accelerated in January 2025, fueled by international uncertainties—specifically, President Trump’s tariff and trade policies—introducing an element of uncertainty to an already shaky market.
Sector Winners and Losers in Q3 2025
Not all sectors felt the correction equally. The analyst identified clear outperformers and underperformers in Q3 2025:
| Sector | Performance | Key Notes |
|---|---|---|
| Agrochemicals | Strong rebound | Benefited from a lower base |
| Infrastructure | Robust growth | Includes real estate strength |
| Consumer Durables | Solid gains | Boosted by EMS companies |
| Exchanges & Cap Goods | Outperformed | Steady revenue and profit growth |
| E-commerce/New Age | High growth | Continued digital demand |
| Textiles | Weak | Struggled with demand slowdown |
| Chemicals | Underperformed | Hit by cost pressures |
| Energy & Commodities | Poor results | Volatility dragged performance |
Segments such as agrochemicals and infrastructure performed well, taking advantage of rebounding demand and positive base effects. Commodity-linked segments such as energy and chemicals underperformed, in line with their exposure to international price volatility and business cycles.
How Deep Was the Correction?
The scale of correction is dramatic if seen through both index falls and median stock falls between January and February 2025:
| Index | Index Correction (%) | Median Stock Fall (%) |
|---|---|---|
| Nifty | 13% | 18% |
| Nifty Next 50 | 24% | 37% |
| Nifty Midcap | 19% | 33% |
| Small Cap | 22% | 37% |
| NSE 500 | 16% | 33% |
Headline indices such as the Nifty fell by 13%, but the median stock correction was much sharper—at 33% for the NSE 500 and 37% for small caps. The gap highlights that the hurt was indiscriminate, especially beyond the top 50 Nifty names, where median drops were above 30% in all market cap segments.
One general assumption is that high PE stocks suffered the most. But the analyst’s figures contradict this:
| PE Bucket | Average Correction (%) |
|---|---|
| Up to 15 | 11% |
| 15-30 | 14% |
| 30-45 | 15% |
| 45-60 | 16% |
| Above 60 | 15% |
After Q3 results (between January and February 18, 2025), stocks whose PEs exceeded 15 fell back by 14-16%, while lower ones dipped marginally by 11%. Earnings downgrades also hit all evenly, as high PE stocks (60+ onwards) had a 7% cut in earnings, whereas low PE stocks (15 or lower) lost a 6.2% slice. The secular correction, surprisingly, had expectations against it as it targeted stocks of every valuation band.
Valuation Snapshot: Is India Still Expensive?
Post-correction, the Nifty’s forward PE has stabilized at 18—a level that is deemed reasonable. India is usually called an overvalued market by critics based on foreign institutional investor (FII) selling. However, when compared with the MSCI World Index, there is a different picture. For the last ten years (2015-2025), India has traded at an average premium of 21% to world equities. Now, that premium has contracted to a mere 2%—a fleeting convergence occurring only six times over 10 years. In the past, such instances have come before market rallies.
Another technical gauge, the 200-day moving average (DMA), is indicative of ultra-sell-off levels. Just 10% of stocks on the list are above their 200 DMA, a reading that was hit only five times since 2002 (2008, 2020, etc.). This hints that the market is set to bottom and, possibly, turn upward in weeks.
Domestic Recovery: Green Shoots Emerge
Indian economy is beginning to pick up. GDP growth, which had touched a low of 5.6% in Q2 2025, returned to 6.2% in Q3, with expectations of 7.7% in Q4. GST receipts, a gauge of economic activity, indicate this pick-up:
| Period | GST Growth (%) |
|---|---|
| Q1 2025 | 10% |
| Q2 2025 | 9% |
| Q3 2025 | 8% |
| Jan-Feb 2025 | 11% |
Government capex is also picking up. Of the ₹10.2 lakh crores allocated to 2025, ₹7.57 lakh crores had been incurred by January, with December (₹1.72 lakh crores) being a peak. February and March will likely cross ₹1 lakh crore, indicating healthy fiscal support.
Hiring trends support this optimism. The Naukri Job Speak Index rose from 2430 in November 2024 to 2890 in February 2025, led by a 21% increase in AI/ML positions, 20% in hospitality, and 9% in real estate. While the new RBI Governor’s turn to dovishness—highlighted by a 25-basis-point rate cut, liquidity injection, and eased lending norms—supports fiscal initiatives, laying the groundwork for growth.
Risks on the Horizon
In spite of these positives, threats lurk. President Trump’s tariff and trade policies are a wild card, although their effects might be entirely priced in by April 2025. An orderly correction in the US markets, driven by AI stock volatility (e.g., competition from China’s Deep Seek model), could also reverberate across the world. Assuming away these, the analyst perceives minimal downside.
Investment Outlook: Time to Act?
With valuations appealing, technicals at record lows, and the economy showing signs of recovering, the analyst is optimistic. They intend to invest cash on hand into shares, believing that the risk-reward ratio in favor of the investor over two to three years. Short-term volatility can continue, but worst seems priced in, providing room for long-term profit.
final verdict
The 2025 correction has served as a wake-up call, but it is also a potential turning point. Investors need to balance the information—oversold markets, healing fundamentals, and policy support—with external risks. For those who have a multi-year time frame, now may be the right time to invest in equities and ride out the recovery on the horizon.
click below for full video
Disclaimer: This article is based on a monthly video update published by Hiren Ved, Director and Chief Investment Officer of Alchemy Capital Management Pvt Ltd, in March 2025. The content reflects Hiren Ved’s personal views and analysis as presented in the video and does not constitute an official interview or verified publication. Market conditions are subject to change, and past performance does not guarantee future results. Readers are advised to consult a certified financial advisor before making any investment decisions.