Financial Planning

Market Outlook – June 2024


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.

Market Outlook – May 2024

“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.

Market Outlook – April 2024

“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.

Market Outlook – March 2024

“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!

Market Outlook – February 2024

“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!

Market Outlook – January 2024

“Knowing when to stay out of the markets is as important as knowing when to be in them.”Mark Weinstein (US Financial Expert)

As we embark on the new year, we extend our warm wishes for a very Happy and Prosperous 2024!

2023 has been a year etched in gold for our nation, a vibrant tapestry woven with countless threads of progress. The Indian economy has remained resilient in the face of global uncertainties on the back of strong structural drivers, macro stability, strong domestic demand, and responsible fiscal governance. This has been reflected in the robust growth of sectors like automobiles, engineering, and infrastructure. The ‘Make in India’ initiative has gained impressive momentum, propelling us closer to our vision of Atmanirbhar Bharat. These cumulative advancements directly contribute to the booming stock market, attracting increasing participation from investors. We are optimistic that this trend will continue in 2024, fuelled by India’s projected trajectory towards becoming a $5 trillion economy.

Over the last three years, we have seen an inflation-led interest rate hike globally. It appears though that interest rates have peaked and there is a possibility of rate cuts in the second half of the year. As global growth remains muted, with commodity prices stabilising and the demand-supply dynamics normalising, it further supports the rate view. This in turn can lead to the flow of funds into emerging markets and India could be a likely beneficiary given its positive growth forecast.

As we enter 2024, the market has seen an 8% gain in December, an 18% return in the last two months, a 20% return in 2023, and a 57% gain in nine months from the low of March.

On the domestic front, the incumbent BJP’s sweeping victory in state elections has improved prospects of political continuity in 2024 general elections. This augurs well for macro and policy momentum in India, which at the moment is seeing the highest growth among major economies (in terms of GDP and corporate earnings). All these factors have led to an upgrade in India’s rating and GDP growth forecast by various global firms. As a result, the market cap of BSE-listed companies has crossed the USD4t mark, and NSE has overtaken the Hong Kong Stock Exchange to become the world’s 7th largest exchange by market cap.

What to look forward in January

  • Q3 results will set the tone for further rally. We expect it to be neutral calming down markets.
  • Expect Crude Oil to rebound. Tensions in Red Sea wherein terrorists attacking merchant ships will create roadblocks for smooth movement hampering supply, thus spike in oil prices.
  • Inflation nos. expected to remain constant at same levels that means no immediate rate cuts by central banks in India as well as in US.
  • Overall, post BJP Victory markets have discounted a BJP win with December rally. Valuations are now touching over-valued zone. Q3 results will rebalance the Price vs Earnings difference and consolidate.

We expect markets to correct in January. Hence, we recommend new funds purchase towards 100% Debt allocation at present. We also recommend booking 20% profit, booking on the overall portfolio, and shifting same to Debt funds.Happy Investing!

Market Outlook – November 2023

Market Outlook – November 2023

“Investors make money, traders make money. Investors who behave like traders & traders who behave like investors get killed.”

The global and domestic markets made a smart come back in the month of November’23 amid cheerful festive season and positive global cues. Investor sentiments turned buoyant as concerns have eased post dovish Fed commentary and strong economic data indicating that US Fed may not go with further rate hike.

Broad-based rally was seen in the month of November with Nifty gaining +5.5% for the month to close at 20,133 levels, while Nifty Midcap 100 / Nifty Small cap 100 indices, outperformed with gains of 10.4%/12%.

DIIs recorded inflows of Rs.12,762 crore, their fourth consecutive month of strong inflows. While FIIs turned net buyers to the tune of Rs.5,795 crore after witnessing selling for three consecutive months.

IPO market was too in spotlight, with 10 main board IPOs worth Rs.14106cr open for subscription during the month. Tata group led Tata Tech saw a record 7.34 million applications and listed at premium of 140%.

BJP’s sweeping victory in three of four states has also instilled confidence in the market as far as political stability is concerned. We expect the market sentiment to get further boost, and thus strengthen the prospect of a pre-election rally.

On sectoral fronts, all the indices gained tracking positive global cues with Realty sector stealing the show. Real estate Sector performed well following a huge surge in sales & property registrations. FMCG and Banks & Financials witnessed modest gains relatively.

Positives in November

  • Israel-Hamas War tensions reduced a bit after a temporary ceasefire.
  • Crude Oil scaled down from 84$ per barrel to 70$ per barrel – highly positive for Indian markets.
  • BJP won 3 key states of MP, Rajasthan & Chhattisgarh, raising hope of a Modi re-election in 2024 Lok Sabha elections – highly positive for Indian markets.
  • US 10-year treasury yield corrected from 5% to 4.25% on dovish statements from Fed Governors and continuity of pause in rate hikes in December meet as well.
  • RBI kept Repo rate unchanged at 6.5% continued with “Withdrawal of Accommodative Stance”.
  • Real GDP growth projection for FY24 revised to 7% from 6.5%
  • GST collection of Rs1.68 lakh crores in Nov 2023 were also buoyant.

What to look forward in December

  • Fed to kept rates unchanged at 5.25-5.50% in their December policy meet, also providing clues for future rate cuts. – Positive for markets.
  • Though valuations nearing high zone, higher flows from FIIs and pre-election rally will keep markets in uptrend. – Nifty target 21500.

December Forecast: Sentiments post BJPs victory in 3 key state elections are pretty high now. Equity markets were justifiably anxious about the outcome of state polls and what it portends for the 2024 general elections. With the outcome overwhelmingly in favor of the incumbent BJP, the confidence of the market in the current dispensation and political continuity post 2024 Loksabha elections got a boost. This augurs well for macro and policy momentum for India, which, at the moment, is seeing the highest growth among major economies (both GDP as well as corporate earnings).

We expect market sentiment to strengthen further and the prospect of a preelection rally is quite strong now, in our view. We also note that Nifty has given positive returns (8%-30%) six months into the announcement of general election results (Nov to May) on five previous such occasions (1999-2019).

Happy Investing!

Market Outlook – November 2023

“The biggest asset in the world is your mindset”. – Gary Vaynerchuk (American businessman, author, speaker, and internet personality)

After achieving the milestone of 20k in Sep’23, the Nifty-50 consolidated in Oct’23. The index oscillated 1,012 points before closing 559 points (or 2.8% MoM) lower at 19,080, notably the steepest MoM decline in CY23.

The global and local markets were jolted by the Israel-Palestine conflict. FII outflows have been sharp in the last two months; however, they were matched by stronger DII inflows. In Oct’23, DIIs recorded the highest inflows in the last seven months at USD 3.4 billion. FIIs saw outflows for the second consecutive month at USD 2.7 billion.

Key events in October:

  • Israel-Hamas War sent global markets in turmoil, almost all global indices ending in deep red.
  • Gold price shoots 10.4%, bouncing from 13-month low of $1816/ounce to $2005/ounce high on safe haven buying.
  • US treasury yield, touched multi year high of 5.02%, on expectations of further rate hikes by the Fed.
  • FIIs sold 29,057 Cr in September, removed 76,369 Cr in the last 3 months.
  • Crude jumped back to 95$ per barrel range, on concerns of supply constraints due to war.
  • INR depreciated further and is trading at the lowest level vs the USD @ 83.28.

What to look forward in November?  – Expecting Bumper month ahead.

  • Fed kept rates unchanged at 5.25-5.50% in their November policy meet, signalling no further rate hikes in near future. – Positive
  • US 10 Year treasury yield cooled off after no further rate hike signal by Fed. – Positive
  • Q2 results have been in line with the performance of heavyweights such as BPCL, HDFC Bank, JSW Steel, Reliance Industries and ICICI Bank, driving the overall performance. – Positive
  • Oil prices cooled off from $95 to $76 per barrel after indication that Israel-Hamas war will not spread into a multi-state war. – Positive
  • Inclusion of India in JPM Bond Index may draw upto $40 billion flows to India, keeping Indian currency stable. – Positive
  • Stronger GDP growth, high tax collections, CPI under control, low current account deficit and high credit growth will drive the markets. Markets expects earnings to grow by 18% in FY 24 and 14% in FY 25. –  Positive

November Forecast: With major negative news of Fed hike and Israel War done & dusted, we expect markets to bounce back sharply in November, and even make new highs. Nifty is expected to trade in the range of 19,500 and 20,500. With oil & US treasury yield cooling off, FIIs are expected to return back with a bang, giving us a bumper Diwali!

Happy Diwali & Happy Investing!

– Photo Credit: Outlook Money

Market Outlook – October 2023

“Winning money is 80% behaviour and 20% Knowledge”.Dave Ramsey (American radio personality who offers financial advice, writer)

– Dave Ramsey (American radio personality who offers financial advice, writer)

The domestic market witnessed volatility in September as concerns over higher interest rates, foreign capital outflow and global economic slowdown weighed on sentiment. However, the Nifty 50 ended the month with a gain of 2 per cent while the Sensex rose 1.5 per cent.

Positives in September:

  • GST Collection hits ₹1.62 trillion in September, marking the fourth highest monthly collection since the inception of the indirect tax regime and a 10% annual growth from the year-ago period.
  • The inflation rate cooled off from 7.44% to 6.83% in August & further expected to drop till 5.3% in September.
  • J P Morgan includes India in the Global EM Bond Index.

Negatives in September:

  • 10-Year US Treasury Yields near the 15-Year high (4.704%) on fears of further rate hikes – the main reason for fall in worldwide markets.
  • Gold price fell to a 13-month low at $1816/ounce & US Dollar index spiked to an 11-month high at $107.
  • Crude Oil touched 95$ per barrel, the highest level in more than a year.
  • FIIs sold 26,692 Cr in September, removed 47,312 Cr’s in last 2 months.

What to look forward in October?  –  another volatile month…

  • RBI Policy meeting is due on October 6, 2023. The markets are expecting interest rates to stay intact. – Positive for markets.
  • Q2 results to start coming. Traditionally it is a good quarter for markets. – Positive for markets.
  • Oil prices expected to cool off in October – rising crude supplies and pressure on demand from high-interest rates started to impact oil prices. – Positive for markets.
  • Rising US treasury yields as US inflation is expected to be sticky which means higher interest rates in the US for longer – a Big Negative for markets.
  • Cricket World Cup, Durga Puja, Dussehra – Airlines, Hotels, Consumption will see a big positive uptick. – Positive for markets.

US Treasury Bond Yield: What It Is and Why It Matters?

Treasury bonds (T-bonds) are government debt securities issued by the U.S. Federal government that have maturities of 20 or 30 years. T-bonds earn periodic interest until maturity, at which point the owner is also paid a par amount equal to the principal.

Treasury bonds are part of the larger category of U.S. sovereign debt known collectively as Treasuries, which are typically regarded as virtually risk-free since they are backed by the U.S. government’s ability to tax its citizens.

This bond also tends to signal investor confidence. The U.S Treasury sells bonds via auction and yields are set through a bidding process. Prices for the 10-year bond drop when confidence is high, which causes yields to rise. This is because investors feel they can find higher-returning investments elsewhere and do not feel they need to play it safe.

But when confidence is low, bond prices rise and yields fall, as there is more demand for this safe investment. Put simply, falling yields indicate caution in the markets. This confidence factor is also felt outside of the U.S. as it points to the future of the global economy. The geopolitical situations of other countries can affect U.S. government bond prices, as the U.S. is seen as a safe haven for capital. This can push up prices of U.S. government bonds as demand increases, thus lowering yields. 

This is exactly happening in markets right now. Fed’s continuous rate hikes to tame inflation had a very little impact, which remained elevated. US markets are resilient, and all economic indicators are showing positive nos. This will not allow the Fed to change its mind on rate cuts. More hikes or higher rates for longer will impact the economy negatively in turn keeping bond prices higher.

A 5% bond rate for 10 Years in dollar terms is good enough attraction for funds to flow from across markets back to US treasury markets – big reason why we have seen a heavier FIIs outflow in last couple of months.

Though domestic investors are buying it, but they will be not able to match the volume of FIIs and hence more corrections in markets is not ruled out.

October Forecast: We expect markets to be choppy. Nifty will take strong support at 19,200 and 20,000 will have resistance on the upside. One can look at allocating 10% of fresh funds each in Gold & Silver, as prices have seen a sharp correction and are at attractive rates to buy.

Happy Investing!!!

Market Outlook – September 2023

“Stock markets are always right. Never time the market.”

– Rakesh Jhunjunwala (Indian Billionaire, Business Magnate, Stock Trader, and Investor)

The market is rallying consistently over March to July 2023, with Indian equities taking a breather in August 2023. Nifty index fell 2.5% in August due to global slowdown concerns and a sticky & persisting inflation, which remained above most of the Central Bank’s target.

Key reasons for negative fall in August:

  • US Treasury Yields touched an all time high on fears of further rate hikes – main reason for fall in worldwide markets.
  • Driest monsoon in India since 1901 in Aug, due to the influence of El Nino.
  • Crude Oil crossed 90$ per barrel as Saudi made more voluntary production cuts.
  • FIIs sold 20,620 Cr after 6 months of heavy buying.

Key reasons for market rally in September:

  • RBI chose to keep rates unchanged in its policy review in August. Growth Focus continues in policy direction.
  • Q1 result season: A tad better than expected. Nifty earnings grew 32% in 1QFY24, a beat vs. expectations of 25%.
  • RBI discontinued the Incremental Cash Reserve Ratio (I-CRR), which was put in place to absorb surplus liquidity following the withdrawal of Rs 2,000 currency notes, in a phased manner. Banks stocks rallied because of this decision.
  • India remained the fastest growing economy with Q1 GDP at one year high of 7.8%.

Successful G20 Delhi Declaration and India’s diplomatic triumph triggered the continuation of the positive market mood and momentum.

What to look forward in September? Dark clouds are gathering.

  • Rising Oil Prices: Oil prices have risen 20% in last 3 months, expected to cross 100-dollar mark again – a big negative for markets.
  • Below par monsoon will impact rural consumption and will fuel food inflation.
  • Special Parliament Session is called – Announcement of early elections will lead uncertainty in markets.
  • US Fed meet is on 20th September, another rate hike will put more pressure on markets – expectations are of no change but with bullish commentary.
  • FIIs after a consisting buying of 5 months have again become net sellers. Remember our earlier articles – Higher Crude Price – FIIs exit.

September Forecast: though markets continued making all-time highs each day, global indicators cannot be ignored. Being cautious at such times will be more sensible than waving the bull ride. We recommend to park money in Debt funds at present and wait for more clarity in Domestic as well as Global front in coming weeks/ months.

Happy Investing!