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.

Mushtaq Kazi
Mushtaq is the co-founder of Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University.
His interests include cooking & gardening. When he is not cooking or gardening, he is writing.