EF Digest - June 2024

Dear Investors,

The equity market continued to be volatile in May 2024 due to uncertainty about Lok Sabha election results. The first two trading sessions saw huge volatility see-saw. The market made record highs after the exit polls, which predicted a big win for the NDA. However, the market crashed on the counting day when trends suggested that NDA may get a much smaller majority than what the exit polls had predicted. The Nifty slipped below the 22,000 level, closing at 21,885 (down nearly 1,400 points), while the Sensex fell by more than 6,000 points to close at around 72,000, as on June, 4th 2024. The broader market was not spared in the market mayhem, as midcaps and small caps also fell by 7 – 7.5%, tracking the fall in Nifty.

The market may take a couple of trading sessions to settle down as it absorbs the news, but we do not expect a major breakdown from current levels. Though the opposition has made impressive gains in this Lok Sabha election, the NDA has crossed the halfway mark and is expected to form the Government. We can expect the market to consolidate around current levels before resuming the up move. India’s GDP grew by 8.2% in FY 2023-24 exceeding earlier forecasts. Goldman Sachs has revised India’s GDP FY 2025 forecast to 6.8%. The fall in the equities can provide excellent investment opportunities for long term investors.

As far as global markets are concerned, US markets rallied in May on hopes of interest rate cuts. Among the other developed market the Nikkei and DAX closed the month with modest gains. The Hang Seng was up by 1.8%. FIIs have been shifting their emerging market allocations from India to China as Chinese equities appear to be more attractive from a valuation perspective. FIIs have been net sellers in CY 2024 (net sales of Rs 25,000 crores in May). However, the strength of the US market will be positive for global equities, including India. The correction in Indian equities and policy continuity with the formation of a stable Government can result in shift in FII stance towards India.

As far as debt market is concerned, the 10 year Government bond yields declined by 17 bps, while the 1 year (364 day T-Bill) yields softened by 4 bps, indicating gradual mean reversion of the yield curve. The current yields provide attractive investment opportunities for longer duration debt fund investors since they can benefit from price (NAV) appreciation as interest rates fall. In the commodities market, precious metals continued to shine with silver rising by 15% in May 2024. We expect gold and silver to gain further in coming months and quarters as rate cuts draw nearer. You can add gold and silver to your asset allocation with medium to long term investment horizon.

Overall, we are positive on the equity market. Investors should remain disciplined and continue to invest through SIPs. It is also important to review your asset allocation and take necessary actions. Assuring you of our best services always.

Best Wishes,

Ajoy Agarwal,

(Managing Director)