EF Digest - September 2024

Dear Investors,

The Sensex closed August 2024 above 82,000 while Nifty closed well above psychologically important level of 25,000. The broader market kept pace with the Nifty, but we are seeing early signs of exuberance waning for midcaps. Nifty Next 50 was the standout segment in August as it outperformed both Nifty 50 and Nifty Midcap 150 indices. Small cap was the best performing of segment. Sector rotation continued in August. Healthcare, Consumer Durables, Tech and FMCG were the best performing sectors in August, while power, PSU, Infra, metals and capital goods underperformed. Overall investor sentiment continues to be bullish. However, valuations can be a cause of concern in certain pockets of the market, especially in midcaps which are trading at all time high premiums in comparison to large caps. FIIs made net purchase of Rs 11,930 crores. Mutual fund net purchase was around Rs 39,300 crores.

US equities continued their strong run with S&P 500 posting 1.3% gain in August. Among the other developed markets, the Nikkei and FTSE were flat, while the CAC and DAX closed the month with gains. The Hang Seng was one of the best performing major equity indices in August. The US Federal Reserve has indicated that rate cuts will be on the table in FOMC meeting scheduled to take place later this month. Hard or soft landing in the US at the end of the interest rate cycle continues to be a major risk factor for global equities. Among major political events, the US Presidential elections to be held in November 2024 can also have some short-term impact on the market.

India is in a macro-economic sweet spot. IMF has forecasted India’s FY 2025 GDP growth to 7%, which will again the highest growth rate among G-20 economies. The fiscal deficit has been narrowing – from 6.4% in FY 2023 to 5.6% in FY 2024. In 2024 Union Budget, the fiscal deficit target for FY 2025 is 4.9%. Government borrowing for FY 2025 will be Rs 1.4 lakh crores less than what was estimated in the interim Budget. This may lead to softening of bond yields.

The 10-year Government bond yield softened by 10 bps, while the 1-year (364-day T-Bill) yields eased by 14 bps signalling gradual mean reversion of the yield. July WPI data indicates that inflation is cooling which can push down yields further. The steepening of the yield curve provides attractive investment opportunities for longer duration debt fund investors with 2 – 3-years investment horizon since they can benefit from price (NAV) appreciation as interest rates fall. Yields are also attractive in 4-to-6-year range as well as in 8-to-10-year range, with potential of capital appreciation when interest rates go down. . For short term investors with investment horizon of 1 – 2 years, yields are attractive compared to traditional fixed income investments.

With the market at record highs, the market will need support from corporate earnings to sustain its rally. Q1 corporate earnings were in line with Street expectations. The Indian market will also take cues from global equity markets. The US market is strong with S&P 500 trading at all-time highs. The market may extend its rally further, if the Fed cuts rates in September.

Investors should remain disciplined and continue to invest through SIPs over long investment horizon and maintain a balance in their portfolio with regards to the mix of asset allocation in current market conditions.

Assuring you of our best services.

Best Wishes,

Ajoy Agarwal,

(Managing Director)