Indian equities have been one of the biggest losers among the top 10 global markets in March, hit by a decline in sentiment toward small and mid-cap stocks.

Returns in dollar terms have also been lower because of a depreciation in the rupee. So far in March, India's aggregate market capitalization dropped by 1.6 percent in dollar terms, marking the steepest fall since October 2023. The Indian equity market, however, maintained its fifth position globally with a market capitalization of $4.5 trillion.

The UK recorded the largest gains of 3.8 percent, followed by Canada and Japan with gains of 3.75 percent and 3.43 percent. The market value for the US and France expanded by 2.66 percent and 1.84 percent, while Hong Kong saw a growth of 0.84 percent. Saudi Arabia suffered the sharpest decline of 2.13 percent, followed by India's 1.6 percent and China's 1.4 percent.

The domestic markets went into a correction in March after investors turned nervous about parking their money in midcaps and small caps, and liquidity challenges were hardened by operator activity. The recent ED raid on Hari Shankar Tibrewal and others involved in stock manipulation also thickened the air of caution in the broader market. Sebi's advisory to mutual funds regarding froth accumulation in smallcap and midcap schemes further impacted these stocks. On the currency front, the Indian National Rupee weakened around 0.6 percent against the US dollar in March.

The markets, however, rebounded last week following a more dovish stance than expected from the US Federal Reserve, driving global indices to record highs and benefiting stocks.

US Fed decided to maintain the interest rates aligned with market expectations. The decision was unanimous, reflecting the consensus among participants who see no immediate need for rate hikes. Highlights from the US central bank included a dovish outlook for the coming year, with the Fed retaining the projected three rate cuts for the year despite a strong labor market. Fed chair Jerome Powell noted a considerable easing of inflation but emphasized the need for a more sustainable slowdown in prices.

After the recent spate of corrections, analysts foresee a base forming in indices. Many quality companies have hit key support levels. Investors should prioritize accumulating quality stocks for the long term. The ongoing consolidation is expected to pave the way for the next upward movement, with large-caps likely to outperform the broader market, analysts said.

Emkay Research in its latest report said March correction offers a 6-12-month entry opportunity, driven by stretched valuations and small and midcap liquidity concerns.

Despite the wobble, the economic fundamentals remained strong for India, with earnings growth continuing in FY25. Emkay Research expects a rebound in 3-6 months as small-caps and midcaps outperform and large-cap trade unwinds. Valuations remain mixed, with Nifty P/E moderate at 20x but small and midcap indices elevated at 29x and 25x. Small and midcaps rally persist due to the economic shift towards manufacturing, offering volatile yet rewarding opportunities, said the brokerage.

Emkay had in its January report said the Nifty would hit 24,000 by the end of December 2024. In its latest report, it preferred small-caps and midcaps and overweighting consumer discretionary, materials, and industrials. The brokerage bases its three-six-month projection on factors like anticipated BJP victory in the general elections next month, a reform-oriented budget in July, and monetary easing by the Reserve Bank of India.

Foreign brokerage Jefferies said it sees the recent decline in midcaps and small-caps as just a correction and not a meltdown like 2018. Despite potential further corrections due to increased volumes and mutual fund flows, it views this as healthy. It remains bullish on sectors like property development, industrial and power, and select PSUs. Unlike 2018, this correction isn't worsened by a crisis, and macroeconomic fundamentals remain strong. Inflows to small-caps and midcaps have moderated, though volumes remained high, signaling the potential for further correction, it said.