Signs of Sectoral Rotation

Apr 22, 2025

All major indices—from the Nifty 50 to the Nifty Microcap 250—posted strong one-week and one-month gains, with the smaller-cap indices (Smallcap and Microcap) leading the charge (up 7.7% and 8.5% in one week, respectively).

While the 1-week and 1-month returns are robust and green across most segments, the 3-month and 6-month columns are awash in red, highlighting that the recent rally is a sharp reversal following a period of sustained weakness.

Such strong and widespread gains suggest a classic “risk-on” environment, where investors pour money across the market spectrum—not just into large, defensive names, but also into riskier mid- and small-cap stocks. This is often seen when a major overhang or uncertainty is lifted, as was the case with Trump’s tariff pause announcement.
Despite the celebratory tone in the short term, the longer-term returns (3-6 months) remain negative for most indices and sectors, especially cyclicals like IT, Metals, and Auto. This suggests that while the tariff pause has triggered a relief rally, underlying economic and export challenges persist, and the market is still recovering from earlier shocks

Top 10 Outperforming Sectors - Stock Scans

Banks and NBFCs are leading the revival rally that was there in the past 1 week. There are some signs of sector rotation that is happening currently.

Sub themes which are doing well and showing strength

1. Hospitals

2. APIs

3. Private banks

4. SFBs

5. Jewellery sector

6. FMCG: Dairy products

7. Textiles

With this the overall market breadth has also started to improve where -

Percentage of stocks above improving from the bottom
Large caps and small caps making new 52 week highs while midcaps lagging behind
More new highs are being formed than lows
Also Banks and finance are also leading the way in making new 52 week highs

Overall the market breadth has started to improve with that upside moves sector rotation has also started to become visible. On top of it Indian macros are also improving with retail inflation coming down, Crude prices falling, Liquidity improving and rate cut cycle in place with expectation of more rate cuts to come in the future. On top of that the monsoon forecasts are also good. That would be good for a lot of consumption led themes to also do well.

Also the government order tendering has also improved a lot in march and because of the increase in the award of orders in march and feb the year has been able to close up 2% for the year 2025.

Top projects awarded in mar2025 were mostly related to the power, Road construction, and telecom orders (Bharat net)

Bebsol Fiasco

Gensol’s rapid ascension in India’s renewable energy sector appeared remarkable. Between FY2017 and FY2024, standalone sales surged from ₹61 crore to ₹1,152 crore, while net profits climbed from ₹2 crore to ₹80 crore. The balance sheet expanded exponentially, with total liabilities growing from ₹10 crore in FY2017 to ₹2,202 crore by H1 FY2025, supported by borrowings that peaked at ₹1,260 crore in FY2024.

The company’s 2019 listing on the BSE SME platform and subsequent 2023 transition to the main boards of BSE/NSE catalyzed retail investor interest. Shareholders ballooned from 155 in FY2020 to 109,872 by March 2025, while promoter holdings halved from 70.72% to 35% during this period. This dilution coincided with a meteoric stock price rise to ₹1,126/share (market cap: ₹4,300 crore) before collapsing to ₹133/share (₹506 crore) by April 2025

The crisis emerged publicly in March 2025 when CARE Ratings and ICRA downgraded Gensol’s credit facilities to ‘D’ (default grade). ICRA’s downgrade rationale highlighted discrepancies between Gensol’s liquidity assurances and lender-reported payment delays. But one can be alarmed even before the credit rating agencies by simply using CFO/PAT or CFO/EBITDA ratio which was screaming the truth.

More about the truths of cashflow can be in the upcoming masterclass on cashflow on youtube!

So now let’s understand how the promoter syphoned off money for leisure from RTPs and used the debt taken for the purpose of buying EV fleet for blue smart was used to buy property at Camellias and get an expensive spa.

The core misconduct involved ₹663.89 crore of ₹977.75 crore borrowed from IREDA/PFC for EV procurement. Although Gensol claimed these funds financed 6,400 EVs leased to BluSmart Mobility (a related party), procurement records confirmed only 4,704 vehicles purchased for ₹567.73 crore. This left ₹262.13 crore unaccounted, with forensic audits tracing flows through supplier Go-Auto Private Limited to promoter-linked entities

Circular Transactions: Funds transferred to Go-Auto were rerouted to Gensol or entities like Capbridge Ventures LLP (promoter-designated partners).
Personal Enrichment: Portions financed high-end real estate acquisitions and personal expenses of promoters Anmol Singh Jaggi and Puneet Singh Jaggi.
Related-Party Benefits: Transfers occurred to Matrix Gas & Renewables Ltd. (promoter-directors), Param Care Private Limited (director-linked), and Wellray Solar Industries (ex-employee controlled)

The Gensol episode illustrates how rapid growth narratives can mask underlying financial engineering. Key systemic issues exposed include:

Rating Agency Reliance: CRAs failed to independently verify lender certificates despite sector-wide awareness of project finance risks.
SME Listing Vulnerabilities: The BSE SME platform’s lighter disclosure norms may have enabled early-stage misconduct.
Related-Party Opacity: ₹829.86 crore deployed through BluSmart and Go-Auto lacked third-party validation of asset deployments.

In the bull markets every company looks like a consistent compounder and reality gets shaded away on the echoes of the stories made around the companies.

But the bear market is something that separates the Reality from the stories and such examples of companies like Gensol, DHFL, Manpasand, etc. keeps on coming up!

A Short Note on all the Business Updates and Quarterly Results till now

A lot of companies posted business updates and a few quarterly results in the last 15 days. And amongst those these are the interesting ones which might be worth looking for.

Decent to good business updates/earnings till now Sector wise

Life insurance - Decent growth in numbers and market share expansion was seen
Jewellery space - Good business updates. Growth momentum was good for most of the players.
Mfi/SFB - Good updates on collection efficiency
Value Fashion Retailers - Very strong growth momentum for most of the players. Also one of the largest players faced a slowdown in revenue growth
Select Real estate players - Some players reported highest ever pre sales and collections for the Q4.
Transformer companies had a robust commentary on continuing demand

Companies with Below average earnings growth/business updates till now

IT: seems growth has really slowed down & Guidance is being reduced
Capital market players: One of the brokers reported subdued earnings, and guiding for Earnings momentum to resume from Q4FY26.

HDFC Bank vs ICICI Bank Q4 FY25 results -

The reason why ICICI bank has largely outperformed HDFC bank largely lies in the numbers. ICICI bank is able to grow its PAT faster than HDFC bank. Also ICICI bank outperforms in majority of KPIs having ROE and ROA > than HDFC bank and also its Loan to deposit ratio is in a comfortable zone for the company and does not have the same struggles that HDFC bank has to bring down its Loan to deposit ratio.

The Microfinance NBFCs and Small finance banks are showing small signs of recovery. After most of the stocks down more than 50% from the highs the cycle for most of the microfinance players seems to be turning with them showing improvement in collection efficiency and in general with a lag of 1 or 2 quarter the sector turns to do well post the collection efficiency starts to improve.

Disbursements still are still lagging - Improvement in this variable in future can be a big trigger for the players.
Improvement in collection efficiency. – This is considered to be the early sign of improvement in the players. And clearly there is improvement in the numbers here
Also the Karnataka book collection efficiency has improved for the players, which became problematic with Ujjivan leading the way, followed by CAG.