Why the FY-End Rally Happens: Window Dressing, Nifty 50 Surge, and Market Trends Explained

As the financial year draws close, the stock markets have again shown a strong uptrend. Since the beginning of the week, the Nifty 50 has been up 1.08%, the Nifty Midcap 150 has surged 7.27%, and the Nifty Small Cap 250 is down 1.04% on a week-to-date (WTD) basis.

Historically, the final week of the financial year has maintained a 100% strike rate over the last five years, with major indices closing on a positive note. If this trend continues, 2025 could see another FY-end rally, though the Nifty Small Cap 250 still has two trading days left to regain momentum.

What's Driving the FY-End Market Rally?

Despite macroeconomic concerns such as rising U.S. inflation, weaker GDP forecasts, and persistent FII selling, the Indian stock markets continue to surge. The primary reason? Fund managers' window-dressing.

Understanding Window Dressing

In the final days of a financial year, fund managers actively reshuffle portfolios before reporting periods. The strategy involves:

• Exiting weaker stocks that have underperformed.
• Adding strong-performing stocks to improve Net Asset Values (NAVs).
• Boosting quarterly and yearly portfolio performance to attract investors.

This phenomenon has significantly contributed to Nifty 50's sharp rally, with the index gaining over 5% in the last few days. Though fueled by portfolio adjustments rather than fundamental strength, the rally has led to a broad market push.

Should Market Participants Rely on the FY-End Rally?

Although historical trends indicate a strong market performance in the final week of March, the broader market remains uncertain. The current rise may not be sustainable, as window dressing is a short-term phenomenon that can lead to a correction once the financial year ends

Summary

• Nifty 50 is up 1.08%, Midcap 150 surged 7.27%, but Small Cap 250 is down 1.04%.
• FY-End Rally has had a 100% success rate over the past five years.
• Window dressing by fund managers is driving stock purchases.
• Midcaps are leading, while small caps are struggling.
• Markets may correct once the new financial year begins.

While the FY-end rally is a yearly phenomenon, Investors should prioritise long-term fundamentals instead of short-term trends.