EF Digest - April 2024

Dear Investors,

Indian equity market in March 2024 was a mixed bag. While the Nifty and Sensex made record highs, midcap and small cap stocks were roiled by profit booking and volatility. Following positive global cues bellwether indices gained 1.6%. The Sensex gained around 1,100 points closing at 73,651, while the Nifty gained 350 odd points to close at 22,327. After two consecutive months of net selling, FIIs turned net buyers in March. FIIs made net purchase of nearly Rs 33,000 crores in March. Around Rs 31,000 crores net flowed into the equity market through mutual funds. FII buying in March shows improving sentiments towards emerging markets, especially India among global institutional investors.

As far as broader market is concerned, midcaps and small caps continued to see heavy profit booking after SEBI’s advisory to mutual funds regarding froth building up in midcap and small cap stocks towards the end of February. Midcaps and small caps fell by 7 – 12% in the last 2 months. However, both midcaps and small caps made a good recovery by end of the month. Large caps outperformed small and midcaps in March. Within large cap segment, Nifty Next 50 stocks were the outperformers. Among industry sectors, Capital goods, Metals, Telecom, Automobiles and Realty were the top performing sectors in March, while IT and FMCG were the major underperformers. You should continue to invest in equity funds through SIP. The healthy correction in midcaps and small caps can provide good entry opportunities for long term investors. However, you should keep an eye on valuations and focus on quality stocks.

Global markets continued its rally in March with the major developed market indices (e.g. Dow Jones, S&P 500, Nikkei 225, DAX, CAC etc) hitting record highs. Despite concerns about a slowing economy, the strong performance of the US market (S&P 500 gaining 3%) suggests that the market is expecting a soft landing for the US economy. The strength in the US market will support global markets including Indian equities.

In the commodities markets, precious metals (gold and silver) rallied by 7 – 8% in March. Rising gold prices indicates that investors are expecting the global economy to slow down in the future. The European economies are facing economic slowdown and recession risks. While the US economy seems to be have avoided recession, the economy is likely to slow down further in coming quarters. We expect gold and silver to rise further as Fed starts cutting interest rates. Lower interest rates in the US will make gold more attractive as an asset class.

The 10 year Government bond yield remained flat at around 7.1%, but short term yields softened, with the biggest fall seen in the 3 – 6 month range of the yield curve. The fall in short term yields marks the gradual steepening of the yield curve (mean reversion), which remained flat in the 1 to 10 year range for a long period of time. Steepening of the yield curve in the current interest rate scenario indicates that the market is expecting interest rate cuts in the near future. The current bond market situation is favourable for longer duration debt funds since there is an opportunity for price appreciation in the medium term when mean reversion takes place.

The traditional pre-poll rally seems elusive so far. We can expect the market to breakout from the current levels after the results are announced and Government formation takes place. Investors should remain disciplined and continue to invest through SIPs. It is also important to review your asset allocation and take necessary actions. Our team is at your service to fulfil all your investment needs.

Best Wishes,

Ajoy Agarwal,

(Managing Director)