|After a stupendous run since April 23, markets globally took a breather in August. Almost all major global indices were down for the month, with the Chinese markets correcting the most. The change in sentiments may be attributed to the Fitch’s downgrade of the US credit rating from ‘AAA’ to ‘AA+’ which resulted in US bond yields spiking up. The slow growth seen in China also added to the weak sentiments. Indian markets too followed global clues with the benchmark NIFTY50 down 2.5% for the month. However, the headline index performance camouflaged the real action, with the broader market rally continuing unabated. S&P BSE Midcap and S&P BSE 250 SmallCap gained another 2.6% and 4.5% respectively for the month. |
With this move, S&P BSE MidCap and S&P BSE small cap indices have delivered 23% and 28% returns respectively YTD. Sector-wise for the month, oil & gas (-5%), banks (-4%) and FMCG (-2.7%) declined the most, whereas consumer durables (+4.2%), IT (+2.7%) and capital goods (+2.7%) gained the most. FIIs continued to be net buyers for sixth consecutive month having invested another USD ~1.5 bn in August. DIIs flows were positive to the tune of USD ~3.0 bn.
|To us, a flattish August has been a welcome move. After a sharp run, such a slowdown in momentum is very much needed. While the headline markets have taken a breather, mid-cap and small-cap rally has continued unabated in August. We have seen strong equity supply coming in via PE exits and IPO’s and this can absorb decent inflow liquidity. August itself has seen around USD 1.8-2 bn of deals happening. The demand for equities can be gauged by the fact that the entire ownership of a PE-owned IT services company worth almost USD 1 bn, was lapped up by institutional investors as a secondary offering. The company now has no identifiable promoter and will be independently managed by the board. More concerning has been the momentum in theme-based and FOMO-based (Fear Of Missing Out) investing.|
The economic growth trajectory and earnings growth does offer comfort. Also, there has been a decent earnings upgrades for NIFTY50 earnings for FY24 and FY25, bringing the NIFTY50 PE multiples for FY25 to only slightly over the 10-year average. The festive season approaching is also poised to bring in demand growth on the consumption side, while spending on infrastructure and capital expenditure continues to see a lot of traction. On a concerning note, monsoons have been dismal for the month of August, though normalcy is expected in months to come. Higher crude prices also need to be heeded. In short, we remain positive but much more careful.
July 12, 2023 marked the return of international spy, Ethan Hunt on another impossible mission. I am sure this beginning of my blog must have got you thinking about what I am writing about. This Hollywood movie was the 7th edition of the popular franchise, Mission Impossible. It opened to a thunderous response and though opinions are divided about the success of the film, this 7th edition of MI has garnered gross collections of over half a billion at the box office, starring the very popular and charming, Tom Cruise, it was surely a treat for all MI fans.
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The “risk-on” momentum continued for equity markets globally in July and Indian markets too participated in this, logging in fresh all-time highs. The favorable macro back drop – moderating inflation, peaking rates, stable growth and support from both domestic and FIIs inflows has led to renewed momentum in the Indian markets since April’23. NIFTY50 was up 2.9% for the month, while broader markets S&P BSE Midcap and S&P BSE 250 SmallCap were up sharply by 5.7% and 7.4% respectively. Foreign Portfolio Investors, who have now been net buyers for fifth consecutive months, invested another USD ~5.7 bn in July while DIIs flows were marginally negative to the tune of USD ~0.3 bn. Pharma sector was the star performer with Pharma index rising 9%, followed by PSU, Power and Realty sector.
Indian markets have participated in the ongoing global rally and are now trading at an all-time high. The good news is this rally has been accompanied by a strong economy, robust corporate profit outlook and improving macros. The initial fear of the El Nino effect induced lower monsoons have been allayed with widespread rains all across the country and forecasts of a normal rainfall for the latter part of the monsoon season. Having said that, in the near-term markets have had a very strong run-up since April – 23 and there is a fair chance that it can take a breather at current levels. Valuations are at just about 10% higher than the long-term average and any correction might be short and swift.
While maintaining our strong and positive view on Indian equities, we would continue to advise restraint. FOMO (Fear of Missing Out) is high and momentum and theme-based stock movement have been very prevalent. We would advise discipline and staying away from greed-based investing in the current optimistic scenario. From our perspective, we continue to follow our fundamental and value-focused way of investing. We believe in being “Rightly invested, rather than fully invested” and are prepared for any opportunity that comes across due to short corrections with the cash in our portfolios. All our portfolios have done significantly well, outperforming significantly and we intend to stick to our core investment philosophies even at the cost of sacrificing near-term returns, if any.