“Higher the uncertainty – Higher the rewards.”

Equity markets after five consecutive months of decline, bounced back smartly in Mar’25, on the back improving domestic macros, FII buying and short covering in F&O space.

Markets gave away much of those gains in the first week of April,2025 as Trump tariffs kicked in creating chaos in all asset class across world markets.

India’s retail inflation eased to seven-month low of 3.61% in Feb’25, down from 4.31% in Jan’25. The industrial output (IIP) growth was above expectation at 5% YoY in Jan’25 against 3.2% in December. The US inflation fell to 2.8% in February, below January’s 3% and the market expectation of 2.9%.

FIIs turned marginal buyers in Mar’25, ₹2,014 crore in the secondary market– after 5 consecutive months of outflows. DII inflows remained positive at ₹37,586 crore.

RBI Cuts Repo Rate By 25 Bps; Policy stance shifted from ‘Neutral’ to ‘Accommodative’—a positive surprise amidst ongoing uncertainty.

In the much-awaited event– US President Donald Trump announced reciprocal tariff on imports from 185 countries on 2nd April– escalating trade tensions and fears of an economic slowdown. US Dow fell over 9% over the next 2 days post this announcement, spiralling into a sell-off in global equites.

But in a surprise move Trump did a turnaround yesterday and paused the tariffs for 90 days except China, which gave world markets a much-required relief. The Nasdaq Composite surged nearly 12%, the S&P 500 rose by 9.3%, and the Dow Jones Industrial Average increased by almost 3,000 points.

Nifty corrected by ~16% so far (till 7th April) from its peak in the last 6 months. This correction is mainly attributed to modest 9MFY25 earnings growth (Nifty EPS grew 4% in 9M), continuous FII selling since Oct’24 and a challenging global backdrop. While 4QFY25 is likely be another weak quarter, expectations for FY26 earnings are still elevated and could see downgrades, in our opinion.

Trade War: Here’s How To Think About Tariffs – and How Not To.

1. Common but avoidable ways to interpret the situation:

a) “Tariffs will be rolled back, so it’s just a minor nuisance.” It’s natural to think a sitting president wouldn’t hurt their own economy and that this is merely a scare tactic. That may be true—but it may not. The key is understanding the consequences of even a month of these measures continuing. Equity markets won’t wait for hope to turn into reality. Realized losses can become permanent if we panic at the wrong time. This is why asset allocation matters deeply. Men are known to do stupid things—and men in power, even more so.

b) “India’s tariffs are at 26% and China’s at 54%, so we’re better off. “Not quite. Trade wars have a broad, debilitating effect on global growth. Don’t just focus on sector-specific impacts. When global trade slows, the hit to overall growth is significant.

c) “India’s exports to US is only 2% of India’s GDP and therefore we are unlikely to see a large impact.” This is a suboptimal framing of the problem. Trade wars are never bilateral. China, on which 104% tariff has been imposed (as of 9th April) can’t export at the same prices to US, it could dump it goods in another country where tariffs are lower. This recipient country is likely to retaliate, and this could take shape of a multilateral, global trade war. India’s exports are 12% to GDP and could be at risk if countries start imposing tariffs, not just on US, but on each other as well.

d) “If we survived COVID and the 2008 GFC, we can survive this too.” A better mindset is to prepare rather than assume survival. Portfolios built with conservative asset allocation, diversification, and risk control can survive any market. Otherwise, deep losses can trigger poor behavioural responses at the worst possible time.

2. How to think about the trade war:

a) Best case: Trump reverses tariffs to pre-April 2nd levels or announces a temporary moratorium. This would be the strongest form of damage control and likely a short-term positive for markets.

b) Most likely case: Trump agrees to bilateral negotiations. This opens the door to a wide range of winners and losers, potentially keeping markets volatile and nervous.

c) Worst case: Other nations retaliate—not just against the US, but against one another. This scenario could have a serious impact on global and Indian growth. Markets won’t take this lightly—and with every passing day, this outcome becomes more probable.

3. How should investors act:

a) Avoid trying to predict or forecast the future of tariffs or the markets. Focus on exposing yourself to strategies which have a quality bias and are valuation respecting. Since investing isn’t an exact science, use staggered purchases. There’s no need to rush.

b) Save emotional capital in times of turmoil by reducing the number of actions and transactions you do. High activity is an enemy of long-term compounding.

c) Most importantly, these unknown events create bargain opportunities in equities and other assets. Investors which have a multi-asset or conservative approach can take benefit from these events. When investors sell in an emotional response, the patient investors can gain from the bargains created. Stay the course.

Investment Strategy: Nifty range 22,000-2400; with downside limited. Tariff pause is a clear signal, worst is over. RBI rate cuts, lower inflation, tax benefits to kick-in, good monsoon, good Q1, valuations correction, FII buying – what other indication of a recovery does one need. So double up your investments, such opportunities comes rarely.

Conclusion: Indian markets have corrected 16% from peak. While large caps are now at cheaper levels, mid and small caps valuations have become fair over long term averages. Geopolitical risks and trade tensions will keep markets volatile in the short term, but corrections are overdone. Therefore one should continue gradual equity investments over the next two months, with a focus on large caps. FII buying has restarted & consistent domestic buying is expected to drive markets higher.

“You get recessions, you had stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in markets.” – Peter Lynch (American investor, mutual fund manager, author and philanthropist)

January 2025 Indices Summary

The year 2025 has begun with a sharp market correction. The first nine months of 2024 were highly rewarding, with mid and small caps significantly outperforming large caps. However, after reaching record highs on September 26, 2024 (Nifty 50: 26,277), the markets have since declined approximately 13%.

• Large Caps: Down 15% from peak
• Mid Caps: Down 21% from peak
• Small Caps: Down 24% from peak

While valuations have improved post-correction in large and small caps, mid-caps remain at a premium compared to historical averages.

Key Factors Behind the Market Sell-off

• Slowdown in earnings growth
• Weak urban demand
• Moderation in bank credit growth
• Global uncertainties
• Four consecutive months of FII outflows (₹87,374 crore in January 2025)
• Strong DII inflows (₹86,591 crore in January 2025, marking the 18th consecutive month of net inflows)

Global equity markets displayed a mixed trend. The US, Korea, and most European markets ended in positive territory, whereas China and Japan experienced declines.

Reasons for Sharp Market Selling

1. Trump’s Tariff War: Shortly after his swearing-in, President Trump imposed tariffs on countries with high duties on US imports, triggering a global trade war. India, known for its steep import duties on US goods, will face additional tariffs from April 1, 2025. While PM Modi and Trump recently met to negotiate a resolution, India may need to lower duties or make strategic trade concessions to avoid further economic strain.

2. Elevated Valuations: Despite recent corrections, Indian markets remain overvalued compared to global peers. Heavy domestic inflows have sustained these valuations, but FIIs have taken advantage by exiting positions. Foreign Portfolio Investors (FPIs) have withdrawn approximately $17.89 billion since October 2024.

3. Fed Rate Pause & Inflation Fears: The US Federal Reserve cut rates thrice in 2024 but has since paused, waiting to assess the inflationary impact of the tariff war before making further decisions. Higher US interest rates increase borrowing costs, making Indian markets less attractive to foreign investors.4. Slowing Corporate Earnings Growth: The recent correction coincides with sluggish earnings growth. Nifty 50 reported just 4% PAT growth in 9MFY25, compared to over 20% CAGR during FY20-24. While BFSI led earnings, weakness in consumption and commodities dragged overall performance. Forward earnings revisions remain the weakest in recent tim

“Market fluctuations are your friend, not enemy.” – Warren Buffett

Nifty index started November on a positive note but slipped for most part of the month and witnessed recovery towards the end. It dropped by 1270 points from its highs with some respite towards the end and managed to close above 24000 zones. On the sectoral front we have witnessed buying interest in IT and Banking while weakness in Energy, Metal, Auto, FMCG sector.

Continuous selling by FIIs was paused due to a clean sweep by BJP in Maharashtra assembly elections. This win means BJP & allies will now command majority in both the houses of Parliament, leading to easy passage of bills & continue major reforms.

Negatives in November:

• Q2 GDP shocker: Q2 GDP growth of 5.4% was at its lowest in the last seven quarters.
• India’s CPI inflation rose to 6.21% in October, above the RBI’s target range which may delay the rate cuts.
• India’s Manufacturing PMI fell to 56.5 in November compared to October’s 57.5.
• Q2 result season was overall weak.
• American courts have indicted Adani for bribing some Indian State governments of $250 million during 2021-22.
• Trump ups the ante on tariffs, vowing massive taxes on goods from Mexico, Canada and China on Day 1.
• U.S. President Biden authorises Ukraine to use American missiles against Russia, sparking policy shift and international tensions.
• Fed officials adopting a cautious approach to future interest rate cuts.

Positives in December:

• BJP & allies won Maharashtra assembly elections with a thumping majority, paving way for clear majority in Rajya Sabha and continuity of policy reforms.
• GST collection increased to Rs 1.82 lakh crore in November, an 8.5% rise from the previous year.
• Festive season demand has picked up. We have the longest marriage season (November-January), which should boost consumption.
• Crude Oil prices trading below $70 per barrel, positive for Indian Markets.
• Israel and Lebanon accepted a US-backed proposal to end the 13-month border conflict that spiralled into an all-out war in September with Hezbollah.
• Chinese stimulus packages announcement below expectations, hence limiting further outflow of FII money from India to China.

Conclusion:

• Indian markets have corrected over 8% from its peak. Valuations were pricey as compared to peers and correction was overdue. December is normally a month of profit booking by FIIs before year end closing, hence further selling by them is expected.

• Donald Trump will take charge of office in January 2025 and has already announced what policy decisions will he take post resuming office. Hence markets will wait and watch till full policy announcements are done. A tariff war is expected to resume which is unhealthy for world markets.

• Modi Govt is also quiet since its victory in Lok Sabha elections. Spending is slow and no major reforms announcement has been made till now. Budget will be announced on 1st Feb 2025. New Tax Code is expected to be announced, and other policy announcements should trigger next leg of market upside post budget.

• Benefits of good monsoon this year will be seen in rural spending. Q3FY25, influenced by festive and wedding season demand, likely pick up in government spending, etc. will be pivotal in shaping the near-term growth trajectory.

Hence, we recommend averaging in equity mutual fund schemes in coming two months. Once FIIs selling stops, domestic buying which is consistent will take markets to new highs. We expect markets to be volatile in December and Nifty may trade in the range of 23500 – 25000 levels.

“The big money is not in the buying or selling, but in the waiting” – Charlie Munger

Nifty index started the September month on a positive note and after the initial dip in the first week, it witnessed a movement of more than 1500 points to touch a fresh all time high of 26277. It remained volatile in the last two weeks and lost all its gain of the previous month by correcting from 26277 to 24700. It witnessed volatile swings in last five weeks, as rallied by 1500 points followed by a sharp corrective move of more than 1600 points.

A sharp cut in key policy rates by Fed propelled Indian equity markets to new all-time highs, while sudden escalation in Israel-Iran war, China announcing stimulus packages, SEBI restrictions on F&O trading and Exit polls showing BJP losing Haryana led to sharp correction in markets.

Positives in September:

• Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years.
• India’s Services Sector Reached a Five-month High, With PMI Rising To 60.9 In August, Up From 60.3 In July, Driven by Strong Domestic Demand.
• India Has Overtaken China in The MSCI AC World IMI Index with A 2.35 Per Cent Weighting Compared to A 2.24 Per Cent for The Latter.
• India’s Forex Reserves Hit All-time High Of $704.89 Billion, Up $12.5 Billion As of Sept 27.

Key reasons for heavy selling in markets:

• China’s central bank unveils most aggressive stimulus since pandemic. In September, China unveiled a monetary stimulus package including cuts to mortgage rates and the amount of reserves, one is required to keep on deposit with the central bank. Those and other measures were the most aggressive efforts so far to try to pull the property industry out of the doldrums and spur faster growth.
• Iran-Israel Conflict: War in gulf region escalated after Israel attacked Lebanon and killed Hezbollah chief with air strikes. It also started a ground invasion of Lebanon, expanding the war zone from Gaza to Lebanon. Iran in a surprise move launched ballistic missiles over Israel to avenge the killing of Hezbollah chief which triggered a panic selling in the market expecting an escalation of wider conflict in the region.
• SEBI announces new measures for F&O trading: In order to protect investors’ interest and cut down on speculative trading, capital market regulator Sebi came down heavily on the derivatives market by announcing a series of measures. The six-step framework is designed to tackle the surge in speculative trading volumes, especially on expiry days, while also acting as a potential deterrent for retail investors engaging in F&O trading.
• Valuations are at premium to historical averages: Since valuations of all 3 broader category indexes were trading at historical averages, correction was overdue. Above factors allowed markets to correct and bring valuations to a little cheaper level.
• Impact of State election results: Elections were due in states of Haryana & J&K. All exit polls predicted a loss of BJP due to anti-incumbency factor. This also led to selling in markets as a loss for BJP will be seen as a change in political trend – negative for markets. Surprisingly, BJP was able to retain power for a 3rd consecutive time in Haryana and markets took a breath of relief. Coming state elections in Maharashtra & Jharkhand will also be keenly watched.

Conclusion: All above factors are majorly external & geopolitical. India is still the best market in the world to invest in. Investors should treat this correction as an opportunity rather than sell off their portfolio.

The key factor in today’s Indian market is the dominance of Mutual Fund investments and its ability to cushion and support markets from the onslaught of FIIs selling. The month-on-month inflows from retail investors in mutual fund schemes has not stopped and continues to grow higher. Fund houses are sitting on ample cash to be pumped in such corrections.

Big Bang IPO lined up this month: Companies are rushing to go public in India this year as the stock market booms, with Hyundai Motor’s Indian unit gearing up to launch the country’s biggest initial public offering (IPO) of 2024. Hyundai Motor India, which will be India’s largest Initial Public Offering (IPO) till date, has fixed the price band for its public issue between ₹1,865 to ₹1,960 per equity share.

October outlook: Large, Mid & Small Cap Indexes have corrected in the range of 4-5% each. Large & Small Caps are in fair value zone while Mid-Caps are still trading in over-valued zone. Q2 earnings season will start and will play a major role in setting directions for the markets. We expect markets to be volatile in October and Nifty may trade in the range of 24000-26000 levels.

“The Rich invest in time; the Poor invest in money.” – Warren Buffet

India’s equity markets extended their gains for the third month and ended at record highs. BSE Sensex and Nifty 50 rallied 0.76% and 1.14% on-month, respectively. Markets scaled all-time high multiple times, with the Sensex and Nifty breaching the 82,000-mark and 25,200-mark, respectively. 

Strong signals of an imminent rate cut by US Fed in near future, coupled with positive US economic data, propelled the domestic equities to all-time high. Further gains in the market were capped because of sell-off in consumer and energy stocks and worries over Middle East tensions. Some losses were seen because of profit booking amid concerns over US economy, following weaker-than expected manufacturing data and rise in jobless claims.  

DIIs bought Rs 482.78 billion worth Indian equities, compared with Rs 249.36 billion in Jul-24. FIIs bought Indian equities worth Rs 73.2 billion, compared with Rs 323.64 billion in Jul-24. India’s GDP growth slowed to 6.7% in Q1FY25 compared with 7.8% growth in Q4FY24. India’s GDP is estimated to grow at 6.8% in FY25.

Positives in August:

• GST collections grow 10 per cent to Rs 1.75 lakh crore in August.
• Monthly Mutual Fund SIP Flow crosses 23,000 Cr for first time ever.
• CPI inflation dipped to 3.54% on-year in July-24 from 5.08% in June-24.
• WPI Inflation eased to 2% in July’24 from a 16mth high of 3.3%.
• India forex reserves touch a record high of $675 bn.
• Manufacturing FDI rose 69% over the last 10Y to $165 bn in FY24.
• Cumulative rainfall till 1st Sept 24 seen 7.3% above normal.

September Key Events:

• Key US FED meet for a possible rate cut on Sept 17-18, 2024.
• Big IPOs continues to hit market. Bajaj Housing Finance to raise 7K Cr.
• War news from Israel-Iran & Russia-Ukraine. Iran’s response to Hamas leader killing is still awaited.
• SEBI new ruling on F&O restrictions are expected. This can have a negative impact on the markets.
• Valuations of indices are close to their 5-year averages. Domestic MFs are sitting on Rs 1.5 lakh crore or 5% of their AUM in cash, and this will further cushion any major fall.

The fundamental drivers of India’s multi-decade consumption and infrastructure growth are still firmly in place: favourable demographic dividend, rising per capita income, under-control inflation, digital transformation, strong corporate balance sheets and consolidation of Central fiscal deficit.

India’s macroeconomic situation remains strong and the budget cemented Government’s commitment to further its fiscal consolidation path. Although India’s macros look robust, valuations are not cheap. Valuations of large caps are reasonable compared to the mid and small caps.

Outlook ahead: markets are nearing an over-valued zone, corporate results have been subdued, FIIs are still selling, and DIIs are aggressive buying, all these reasons are keeping the markets afloat. We expect markets to be sideways in September and rising gradually at a slower pace than August. Disappointment in Fed September meeting can drag markets down.

Happy Investing!

“ALL IS WELL THAT ENDS WELL.”

Mega event of Lok Sabha Elections is behind us. As expected, BJP retained power but with the coalition support. Economy has grown at a faster pace in the last decade under the leadership of PM Modi and same will be continued for another 5 years. Markets were expecting Stability & Continuity from these elections and same were delivered to them. Even the union ministers were retained with same portfolios, with BJP retaining majority of the share.

The coalition will approve most of the economic policies & reforms. However, the partners will have a say in them and might me modified to suit them. Social reforms such as CAA & UCC may take a back seat or will be modified from what was originally planned. Moral of the story is MODI is back as PM and his ambition to make India a developed economy by 2047 remains intact.

Positives in May:

1. India’s Q4 GDP Grows 7.8%, Surpasses Estimates; FY24 Growth At 8.2%.
2. May 2024 GST Collections at Rs 1.73 Lakh Crore; Up 10% Year-On-Year.
3. S&P upgrades outlook on India’s sovereign rating to ‘positive’.
4. April CPI inflation eases to 4.83% vs 4.85% in March 2024.
5. Bumper RBI dividend of Rs 2.11 trillion to give govt more fiscal room.
6. BSE Market Cap Hits $5 Trillion For The 1St Time. Market Capitalization-To-GDP Ratio at All Time High of 140.2%.

June 2024 – What to look forward? In our last month’s market outlook, we had said that market performance this year is entirely dependent on below factors:

1. Fed rate cuts, 2) War, 3) Elections

Fed rate cuts: GDP, PMI no’s cooling off, inflation & job data sticky, hence Fed will maintain status quo now, with probability of at least 2 rate cuts this year gaining momentum.

War: No major escalations now limited to small attacks. Talks for peace solution going on, can see some good news on this front.

Elections: With NDA Govt formed and Modi back as PM, elections are done and dusted, focus now on continuity of growth & new reforms. Budget in July end will now be a key event to watch.

Since all above factors moving in positive directions, markets are scaling up new highs. New factors to watch for the entire year now will be:

1. Earnings growth
2. Valuations
3. DIIs Flows
4. China +1

Earnings Growth: The corporate earnings for the fourth quarter of FY24 were strong, with widespread outperformance across aggregates. The earnings beat was driven by domestic cyclicals, such as Autos and Financials, along with Healthcare, Capital Goods, and Cement, while global cyclicals like Metals and Oil & Gas dragged down overall profitability.

Nifty 50 delivered a strong beat with a net profit growth of 12% year-on-year (YoY). Five Nifty companies, HDFC Bank, State Bank of India (SBI), ONGC, Tata Motors, and Coal India, contributed 72% of the incremental YoY accretion in earnings. Ex-Metals and Oil & Gas, Nifty’s earnings grew 16% YoY.

Hence better earnings have helped bringing valuations in fair zone again. Nifty is trading at a 12-month forward P/E of 19.2x, at a 6% discount to its own long-period average (LPA).

Valuations: Indian markets are not cheap in valuations at present, but they are not over valued also. With all economic & geo-political indicators in its favour, it is obvious to command certain premium over others and this will be the norm going ahead unless and until there is some shift from its existing stance. It can be political or policy-wise, both scenarios highly unlikely to happen. So, every small dip will be good opportunity to buy rather than waiting for heavy corrections.

DIIs Flows:

Above data is a clear indicator that Indian markets are now not dependent on FIIs money. Money flowing from SIP’s, Insurance Policies, NPS & Provident Funds have gradually become so big that it is enough to hold back Indexes on its own buying strength.

Indian investors shift from traditional products like FDs, Gold & Real Estate to Mutual Funds and Direct equities is fuelling this rally. This money is there for long term and not to go away quickly. Hence placing a bet against Indian markets will be suicidal now.

China +1: Post Covid, countries across the globe has identified that they cannot be dependent on China, which is now Worlds Manufacturing Hub. China’s current regime is unpredictable, autocratic and pro-conflicts. During Covid, supplies were hit high due to strict and long lockdowns by Chinese Govt. Any future attempt to annex Taiwan will make matters worse and sanctions will hit supplies badly.

Hence world needs alternative, big enough to take care of China. Vietnam, Indonesia are smaller countries not big enough to provide alternative to China. India is the only country in size & resources which can be an apt alternative to China.

Indian Govt has already identified this opportunity in its last regime and already taken action on this front. PLI scheme, corporate tax cuts, infra build up are some of the initiatives India has started. Manufacturing boom will also spur up other sectors related to it like Power, Infra, Housing, Consumption & Auto.

Hence, we can see more allocation of funds this budget in these sectors. India’s imports will decrease drastically, fiscal deficit will improve, and ratings will be upgraded. India’s domestic economy is so huge that even in case of geo-political tensions or global recession, internal demand & consumption will take care of the economy as compared to peers.

Conclusion: We have entered a heavy bull run and above factors will take markets to new high. Any dips should be bought in. Focused sectors like Defence, Power, Manufacturing, Housing, Auto & Consumption will do much better than traditional indexes.

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” – Warren Buffet

Equity markets continued its positive momentum in April for the 3rd consecutive month on the back of strong macros, positive global cues, and healthy earnings. Nifty made a new life high of 22,783 in April and closed the month with gains of 1.2%. Broader markets sharply outperformed with Nifty Midcap-100 up +5.8% while Smallcap-100 jumped +11.4%.

Positives in April:

• GST collection crossing the Rs.2 lakh crore mark for the first time in April’24 at Rs.2.10 lakh crore grossing a growth of 12.4% YoY.
• India’s retail inflation eased to a 10-month low of 4.9% in Mar’24 vs. 5.1% in Feb’24.
• The corporate earnings scorecard for 4QFY24 has been in line so far with the 28 Nifty companies that had announced their results as of 4th May’24, reported an earnings growth of 13% vs. expectations of 8%.
• US Fed kept interest rates unchanged for 6th time. However, it ruled out the possibility of rate cuts in the near term amid ongoing inflationary pressure in US and hinted at higher interest rates for a longer period.
• IMF raises India’s FY24 GDP growth forecast to 7.8%, higher than the government’s projection.
• With a record $776.68 billion worth of exports In FY24, India’s trade deficit narrows to $78 Billion.
• Skymet weather forecasts, normal monsoon for India in 2024.

April 2024 – Key Decision-Making Month:
Market performance this year is entirely dependent on below factors:
1) Fed rate cuts
2) War
3) Elections

Fed Rate Cuts: Finally, US economy has started to cool off. US Real GDP QoQ Nos came at 1.60%, compared to 3.40% last quarter and 2.20% last year. This is lower than the long-term average of 3.18%. US Non-Farm Payrolls dropped sharply from 315K to 175K in April 2024.
Any lower nos. for inflation data this month will guarantee a rate cut this year. With elections due later this year in US, Fed will also be under pressure to cut rates this year which will be extremely positive for world markets and specifically India as RBI will follow suit lowering borrowing cost for corporates.

War: In April we saw war escalation in the Gulf region wherein Iran-Israel conflict nearly created a world war like situation. Common sense prevailed and it ended up without any major damages on either side. Similarly, Ukraine-Russia war has been dragging on since last 2 years not escalating to a bigger conflict world-wide.
In 2024, we will continue to some sporadic incidents from these regions which will create volatility in markets but will be short-lived and under control.

Elections: Lok Sabha elections started with a positive biasedness that ruling party will come back again with even greater majority (400+ seats) but as 3 phases of voting ended, low voter turnouts created a doubt in the mind of investors on above targets and hence saw a sharp correction of 1000 pts in Nifty from its peak.
This correction also allowed valuations to cool off and with support from good corporate earnings Nifty PE came down from 23.2 in April to 21.4 in May making valuations fair.

Conclusion: With Fed expected to cut rates by September, War cooling off and with current Govt expected to return back with higher or simple majority, there will be no major negative news for markets to correct in remaining part of 2024.
Current correction due to market nervousness before election results will be the last chance to enter markets in order to encash a higher return by end of year. We cannot expect much cheaper valuations than this as India is a preferred investment destination at present and no preferred things in demand will come cheaper.

“Risk comes from not knowing what you are doing.”– Warren Buffet

Indian benchmark equity rallied a record high in Mar24. S&P BSE Sensex and Nifty 50 ended higher with 3.34% and 3.33% month-on-month. Sectoral indices ended mixed, with capital goods, auto and metal gaining the most. S&P BSE Capital goods rose 6.15%, while S&P BSE Auto and S&P BSE Metal were up 4.96% and 3.81%, respectively. Loses were observed in IT, realty and FMCG. S&P BSE IT was down 7.20%, S&P BSE Realty fell 1.21%, and S&P BSE FMCG slipped 0.67%.

In between Mid & Small Cap Index also corrected sharply falling 6.05% & 11.05% respectively. SEBI’s comments on caution in markets due to high valuations + Stress test conducted on Mid & Small Cap mutual fund schemes led to this sharp fall. But by the end of the month, entire losses were recovered.

Key Events So Far

• The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) maintained the repo rate under its liquidity adjustment facility (LAF) at 6.50% for the seventh consecutive time at its policy review meet.
• GDP projection for FY24 is estimated at 7.6% and 7% for FY25, with risk evenly balanced. CPI Inflation for FY25 is projected at 4.5%.
• US economy expanded an annualised 3.4% in Q4CY23, higher than estimate 3.2%, compared with 4.9% in Q3CY23. Fed left key lending rates unchanged at 5.25-5.50% 5th consecutive meeting.
• FIIs and DIIs were net buyers in Mar-24, similar to the last month. In Mar-24, FII bought Rs 35,098 billion Indian equity compared to sale of Rs 15.39 billion in Feb-24. DIIs bought Rs 563.6 billion compared with Rs 253.8 billion. FPI Flows into India Hit Record ₹ 3.33 Lakh Crore This Fiscal Year.
• India’s March Manufacturing PMI Climbs to A 16 – Year High Of 59.1. GST Collection in March Surges To ₹ 1.78 Lakh Crore.
• Gold prices touches record high of Rs 71,150/- per 10 gm. The expectation of rate cuts from Fed, rising Middle East tensions and central bank purchases lift the gold price. 
• Brent Crude crosses 90$ per barrel. The rupee rose sharply to Rs 83.58 against the US dollar.

April Outlook

The current valuation of Nifty stands at 20.9X FY25E, 4% premium to its 10-year average of about 20X. All indices are near or above 5-year PE average. Market is rising up because of no major negative news, continuous heavy inflow of funds, hope of Modi Govt returning back for 3rd term, Central Banks cutting rates sooner, normal monsoon, inflation easing and better than expected corporate results.

Any negative news on above front will trigger a decent correction of 5-7%. Any escalation of war in Israel & Ukraine region will also be a major trigger for market correction. Recently Iran threatened to attack Israel after its embassy in Syria was bombed by Israel killing key personnel.

Markets in the near term would take cues from economic data, announcements relating to the upcoming Lok Sabha elections and the timing and quantum of easing in the interest rate cycle, both globally and in India.

Poll of top 10 brokerage houses in India shows a December-end Nifty target of 23500-24000 max. which means 5-6% returns from current levels. Since we expect a healthy 5-7% correction broad based in markets, buying in dips will enhance overall yearly returns from single digit to double.

Please note we do not expect a long-term correction and only a sharp short one, good enough to enter at lower levels which will enhance portfolio yield by 4-5% even if markets underperform the whole year.

“Markets are strongest when they are broad,
and weakest when they narrow to a handful of blue-chip names.”

Nifty index started the February month on a positive note, and follow up buying was intact, as it kissed a fresh all time high of 22,441 zones. Some volatile swings and profit booking was seen at higher zones, but overall Index is holding it support zones. Large & Mid-Caps continued its rally while profit booking was seen in Small Caps. On the sectoral front we have witnessed buying interest in most of the sectorial indices mainly in Realty, Energy, PSU Banks, Pharma, Auto, IT and Metal sector.

Key events so far:

• Fed indicated it will not hurry in cutting rates, delaying hopes for early rate cuts. The next US Fed meeting is scheduled on March 19-20 and would provide cues into global interest rate direction.
• Indian Economy Grows By 8.4% In Dec Quarter Driven by Construction, Manufacturing Sector. India’s GST Collection Rises 12.5% To Rs 1.68 Lakh Crore in February. India’s Retail Inflation Eases To 5.10% In January 2024.
• SEBI Flags Froth in Small Cap, Mid Cap Stocks; advises AMCs to conduct and disclose stress test and figure out measures to tackle situations when the test results indicate red flags. SEBI also announces T+0 Settlement by March 28.
• Gold prices touches record high of Rs 66,270/- per 10 gm. Brent Crude hovers in the range of 82-83$ per barrel. The rupee rose slightly to settle at Rs 82.88 against the US dollar. Bitcoin bounced back sharply to hit all-time highs of $72K.
• DIIs recorded the seventh consecutive month of inflows at Rs.25,379 crore, while FIIs were net sellers of Rs.15,963 crores.
• Equity mutual funds inflow increased by 23% in February to Rs 26,866 crore. February 2024 SIP inflows at ₹19,187 Crore; as SIP folios cross 8.2 Crore.

March Outlook: Nifty is trading at a 12-month forward P/E of 19.5x, which is in line with its 10-year average, even as broader markets trade at expensive valuations (NSE Midcap 100 is trading at ~33% premium to Nifty). Hence, we expect the large caps to outperform the mid and small caps in the near term. March overall is known as sluggish month for markets. Advance Tax payments, Tax Harvesting, Profit booking all leads to correction.

Markets in the near term, would take cues from economic data, announcements relating to the upcoming Lok Sabha elections, and the timing & quantum of easing in the interest rate cycle, both globally and in India.

We expect a healthy 5-7% correction broad based in markets in March. Hence, we recommend allocating 100% in Debt funds at present. Moreover, we do not expect a long-term correction, and only a sharp short one, good enough to renter at lower levels which will enhance portfolio yield by 4-5%, even if markets underperform the whole year.

Happy Investing!

“Money flows in the direction of value.”

Equity markets continued to make positive strides in Jan’24, marking new highs before cooling off towards the end of the month. Positive global environment, benign crude oil prices and healthy corporate earnings, supported the market sentiments. Nifty oscillated in a wide range of ~1,000 points, pulling back from record highs to close flat month on month. Broader market however outperformed with Nifty Midcap 100 and Smallcap 100, up ~5% each.

Key Events so far:

• The US Fed kept its interest rate unchanged for the fourth consecutive time, while hinting the rate cut might take some more time.
• RBI kept rates unchanged for a sixth consecutive meeting and signalled that interest rates may not be lowered in a hurry.
• The Interim Budget managed to tick many right boxes. The government continued to follow the fiscal consolidation path at the same time maintained its investment led spending growth strategy.
• GST collections surge to Rs.1.72 lakh crore in Jan’24, its second-highest monthly collection.
• India’s Services PMI rose to six-month high to 61.8.
• Equity mutual funds witnessed inflows of Rs. 21,780 crores while SIP hit a fresh record of Rs. 18,839 crores.
• The 3QFY24 corporate earnings has been in line so far. Earnings of the 33 Nifty companies that have declared results until 1-Feb-24 jumped 21% YoY (vs. est. of +20% YoY).
• Regular attacks by Yemen backed Houthi militants on ships passing through Red Sea has blocked a major trade route and led to increase in crude oil prices, brent crude trading above USD80 per barrel.
• FIIs have sold heavily in January 35,978 Cr of Equity while DIIs were net buyers with 26,744 Cr in Equity and the trend has continued in February as well.

Feb Outlook:

As on January 31, 2024, NIFTY 50 was trading at ~18x FY26E price to earnings multiple. Further, Market cap-to-GDP stood over 100% (based on CY25 GDP estimates) and the gap between 10Y G-sec yield and 1Y-Forward NIFTY 50 earnings yield* remains at elevated level. *Earnings yield = 1/ (one year forward P/E)

In general, current valuation indicators are at premium to their historical averages. However, one should view these valuations in the context of structurally attractive nominal GDP growth, a healthy corporate earnings outlook, and robust de-levered corporate and banking balance sheets.

Markets dipped in January, but also rebounded sharply. We expect a healthy 5-7% correction broad based in markets in February. Hence, we recommend allocating 100% in Debt funds at present. Please note, we do not expect a long-term correction and only a sharp short one, good enough to re-enter at lower levels, which will enhance portfolio yield by 4-5%, even if the markets underperform the whole year.

Happy Investing!