Market Update – February 2024

January was a month where global equity markets witnessed significant volatility and contrasting performance. Japan (+8%), Malaysia (+4%) and Russia (4%) were the major gainers, while Hong Kong (-9%), Shanghai (-6%) and South Korea (-6%) were the major losers. Indian markets also witnessed swings, with Nifty 50 being flat after two consecutive months of gains. Broader markets continued their gains for the third consecutive month with the S&P BSE SmallCap and S&P BSE MidCap gaining 7.1% & 5.3% respectively. Sector-wise, the oil & gas, PSU, and realty sectors showed strong performances, with gains of 13%, 11%, and 9%, respectively. Conversely, the Bank, FMCG, and metals sectors experienced declines of 4%, 3%, and 1% respectively. Momentum rather than valuations or fundamentals was clearly in the fore.

Market Outlook

Strong domestic liquidity and money chasing returns have seen mid and small caps deliver 27% and 30% returns in the past six months vs just 10% of the Nifty. Owing to this we are seeing many strategists predict a mean reversal and expect large caps to outperform in the coming months. Instead of trying to preempt the market moves we remain focused on identifying companies with strong earnings growth visibility. Post the favorable state election outcome in December, we feel markets have already started to factor in the ruling BJP party coming back to power in the forthcoming general elections to be held in April/May 2024.

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