|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.