| In our pervious newsletter we had mentioned that after a stellar move in April 2023, a breather in the Indian markets was very much needed. Though Indian markets have been remarkably resilient in the face of global challenges, some volatility has been seen in recent times and we do expect this to continue for some more time. Initial feedback of demand from the ensuing festive and wedding season is quite strong and corporate earnings outlook for Q2FY24 is also positive. However, multi-year high-rate yields in US and sticky inflation with weak global economic outlook presents a complete opposite view. Globally markets were weak following a hawkish commentary by US FED at the Federal Open Market Committee (FOMC) meeting. The FED left the rate unchanged but guided that more hikes would be needed to manage inflation. The rise in crude prices and the Israel issue (post September) are also some additional challenges. |
| Despite global challenges, JPMorgan made an announcement that it would include Indian Government Bonds in its emerging market debt family of indices. This move can lead to estimated inflows to the tune of US$32bn across indices over a period, in addition to additional inflows from active investors. This announcement could also drive expectations of inclusion by other index managers. This move is very positive for India as the expected inflows will likely reduce the upside risk for both India bond yields and currency. Market Outlook A strong domestic macro and an equally worrying global scenario has led the markets to a classic dichotomy situation. Indian equity markets were among the handful that stood out and ended September 2023 on a positive note. The recent global events and the ensuing earnings season will drive the market movement in the current month. Momentum should abate a bit and allow opportunities for longer term investors to gradually build their portfolios. |
Market Update – September 2023
| 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. |
| Market Outlook |
| 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. |
The Singing Sun 2 – Random thoughts by Sunil Singhania
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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