Dear Associate,

As we navigate through the bustling months of April and May 2025, it's clear that these past weeks have been marked by significant global and Indian equity developments. From shifting economic policies to geopolitical tensions, the events of these months emphasize the need for strategic approaches to long-term asset allocation. Let's dive into the details.

Global Equity Market Events: What's Driving Change?
Liberation Day Tariff and Rollback: Introduced on April 2nd, the Liberation Day tariff aimed to shield US industries from foreign competition, particularly in manufacturing and agriculture. However, its implementation faced criticism from global trade partners, leading to diplomatic discussions and subsequent rollback by mid-April. The tariff's brief existence, however, highlighted tensions in balancing protectionist policies with international obligations. Global markets saw a significant tumble wiping out almost 20tn$ before recovering the same, as markets believed that trade deals will reduce uncertainties.

US Federal Reserve Policy Update: The Federal Reserve kept interest rates steady in April, but signalled its intent to wait and watch further developments on tariff front, which may have impact on economic activity or inflation. This decision, coupled with inflation management concerns, led to increased volatility across major equity markets.

China's Economic Slowdown: Weak manufacturing and export data from China in April underscored challenges in post-pandemic recovery, impacting emerging markets globally.

Potential Trade Deals: In response to global economic uncertainties, several nations initiated talks for new trade agreements. The United States and European Union discussed enhancing technology and clean energy trade, while India and Southeast Asian nations explored regional partnerships aimed at boosting exports and manufacturing resilience. In early May, US & UK announced an agreement of reference for trade deals.

Indian Equity Market Events: Local Drivers of Volatility
RBI's Monetary Strategy: In April, the Reserve Bank of India maintained interest rates to balance inflation control and economic growth. However, mounting inflationary pressures in May signaled potential rate hikes, influencing broader market sentiment.

Corporate Earnings Results: While the IT sector and pharmaceuticals reported robust growth, consumer goods and automotive sectors faced margin pressures. These mixed results have shaped sector-specific equity performances.

RBI's Monetary Policy in April 2025
The Reserve Bank of India (RBI) cut the policy rate by 25bps to 6% in its April 2025 monetary policy review. The central bank emphasized its commitment to monitoring inflation trends closely while keeping a watchful eye on evolving external factors such as the impact of global tariff rollbacks and fluctuating commodity prices. While maintaining accommodative policies, the RBI hinted at a readiness to act decisively should inflation trends exceed predicted thresholds

Corporate Earnings for Quarter Ending March 2025
Indian corporations presented a mixed bag of earnings results for the quarter ending March 2025, reflecting the complex interplay of domestic and global economic factors.

IT Services reflect a somber near term outlook
The IT sector delivered slightly muted earnings with many bellweather companies trimming their annual guidance (compared to expectations that were being built 3 months ago) owing to global uncertainties emanating from tariff wars.

Challenges in Consumer Goods and Automotive Sectors
The consumer goods sector faced mounting margin pressures due to rising input costs, which dampened profitability despite steady demand. The automotive sector also struggled with supply chain inefficiencies and fluctuating raw material prices, leading to modest growth compared to market expectations.

Banking Sector: Mixed Trends
The banking sector exhibited mixed results, Net Interest Margins were better than expectation for banks, with robust asset quality. Growth was a bit tepid, however there is anticipation that changes announced in last few monetary policies as well as measures to boost liquidity and other policy measures will improve overall credit growth in H2FY26

Market Sentiment and Outlook
April 2025 served as a pivotal month for understanding the balance between macroeconomic policies and corporate growth trajectories, offering key insights into India's economic resilience and adaptability.

Foreign Institutional Investors (FIIs): Despite global volatility, India witnessed a positive FII inflow of over INR 12,000 crore across the two months, reflecting sustained investor confidence in the nation's growth trajectory. This comes after a spate of outflows over preceding 6 months - possibly in recognition of slightly cheaper valuations, relatively resilient economic growth in India (compared to many other countries that are likely to be impacted

Spotlight on Geopolitical Tensions in India
The equity trends in May were heavily influenced by geopolitical developments in South Asia. Rising border tensions between India and Pakistan escalated concerns over regional stability. Government responses included heightened defense measures and diplomatic discussions, which temporarily unsettled markets. Certain sectors, such as defense manufacturing and strategic infrastructure, reported increased investor interest due to their potential alignment with national priorities during uncertain geopolitical times.

Asset Allocation Solutions: A Resilient Path Forward
Events over the last few quarters underscore the importance of thoughtful asset allocation has never been clearer. Here are some key strategies to keep in mind:

Diversification: Spread investments across asset classes, sectors, and geographies to minimize risk and leverage opportunities.

Risk Management: Focus on risk-adjusted returns to navigate market uncertainties effectively.

Goal Alignment: Ensure that asset allocations are in sync with long-term financial goals such as retirement planning and wealth creation.

Volatility in asset classes like equities are a feature, not a bug. Thus, solutions that benefit from volatility can help in bringing a better risk adjusted experience for the investor. For example, ABSL Balanced Advantage Fund quickly cut down net equity exposure from 54% to about 40% in month of October. Subsequently, it held exposure around 40% in net equities till December and post the fall in valuations and negative near-term experience of equities, increased the exposure to about 70% by mid March. This agility in increasing equity exposure during volatile times after showing discipline to cut exposure (in early October) underscores a better experience for the investor, by an improved Upside to Downside capture ratio.

Conclusion
The events of April and May underscore the dynamic nature of equity markets across the globe and within India. For investors, maintaining a disciplined approach to asset allocation and diversification is paramount to achieving long-term stability and growth. While last few quarters have seen an increasing focus on macro - we believe it is important to train focus on "micro" - identifying companies bottom up that may be currently mispriced due to excessive focus on "macro", but can eventually create significant value. To help you understand, some of our larger bets as a fund house, we present the Top 75 positions as a fund house on page XX. We hope it provides you a snapshot of our key investee companies as a fund house.

Source: Bloomberg, MOFSL, ABSLAMC Internal Research

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