EF Digest - December 2023

Dear Investors,

Equity markets rebounded on hopes that US interest rates have peaked. The market is expecting Fed to hold rates at current level and start cutting interest rates from the middle of 2024. The S&P 500 rallied by 8.5%. The US stocks rally supported rally in Indian equities and the Nifty closed the month of November 2023 above the psychologically important 20,000 level. The Sensex gained 5% closing very close to 67,000 level. The results of recently concluded Assembly Elections have also provided a boost to the market. FII flows turned positive after two months, signaling risk-on sentiments in global investments. Domestic flows through mutual funds also remained strong. With Moody’s cutting China’s credit outlook to negative, we expect India to get more FII flows in the coming months.

The broader market (including midcaps and small caps) continued to outperform Nifty and Sensex, a trend that has been in most of the months of this year. Among industry sectors, core sectors like Power, Infrastructure, Oil & Gas, Metals outperformed in November. Other sectors like PSUs, Automobiles, Capital Goods and Healthcare also clocked solid gains in November. Based on latest data published by AMFI, small cap and thematic / sectoral funds received the largest inflows among active equity funds.

As far as debt market is concerned, the 10-year Government Bond yield declined by 16 bps from its October 2023 highs tracking US bond yields, which declined in November after rising almost continuously for 6 months. We expect this trajectory to continue going into the New Year. The yield curve is relatively flat in 2 to 10 year range. Investors with 3 years plus investment tenures can consider investing in short duration, corporate bond and banking & PSU funds. Investors with higher risk appetites can also consider dynamic bond funds or Gilt funds to benefit from potential price appreciation.

In the commodity markets, gold continued to remain firm at around Rs 62,000 (per 10 grams) levels, while silver rose by 5% to nearly Rs 76,000 (per kg). Gold can continue to gain further if US bond yields decline further. Crude oil declined to about $75 per barrel, which is positive for Indian equities.

The market is awaiting a slew of economic data coming from the US in the next few days and also the Fed meeting in the middle of December 2023. We expect market sentiments to remain bullish in the coming months and quarters. Valuation of Nifty is still lower than the historical average. Historical data suggests that we may see a pre poll rally in the run up to the Lok Sabha poll in the summer of 2024. Investors who are waiting on the sidelines or who are sitting on cash should not wait for a correction and enter at these levels because this rally may take the market to much higher levels.

As we approach 2024, I and the Eastern Financiers team wish you and your families a very happy New Year.

Best Wishes,

Ajoy Agarwal,

(Managing Director)