“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.