Vijay Kumar Gaba

Building on the momentum regained in FY23, the Indian economy and the markets made a steady move forward in the financial year FY24. The resilience of growth has been surprising, given the tighter money conditions and challenging external environment.

The global economy was also stable despite geopolitical and climate challenges. Global markets accordingly performed well. The sentiments remained mostly positive and supportive of risk.

The following are some of the highlights of the performance during FY24.

Equity Markets

Indian equity market was amongst the best-performing global markets. The benchmark Nifty yielded a return of ~29% (27% in USD terms), which was in line with the US markets (S&P500 +28%), but much higher than Europe (Stoxx600 +12%; DAX +18%).

Asian markets were mixed. Japanese equities were the top global performers (Nikkei255 +44%); South Korea (KOSPI +17%) did reasonably well; while China (Shanghai Composite -7%), Singapore (-14%) and Hong Kong (Hang Seng -19%) ended the year with major losses.

Broader markets at the center stage

The primary action was away from the benchmark Nifty. Broader markets sharply outperformed the benchmark in one of their best years in the past decade. Nifty Smallcap 100 (+70%) and Nifty Midcap 100 (+60%) led the market gains.

The overall market cap was higher by 50% yoy against Nifty50 gaining 29% (81% of total market cap) and Nifty500 gaining 39% (91% of total market cap). Some part of the gap could be explained by new listings, but most of this is attributable to the massive outperformance of smallcap stocks.

Sector-wise, Realty, PSU Banks, Auto, Energy, Infra, Pharma and Metal stocks were top outperformers. Financials (ex PSU Banks), FMCG, IT Services were notable underperformers. Micro-sector-wise, renewable energy stocks were outstanding while chemicals were the worst performers.

Nifty consistent performer; broader markets more volatile

The benchmark Nifty50 yielded positive month-on-month returns for nine out of twelve months in FY24. However, the market breadth was negative in five out of twelve months implying much higher volatility in the broader markets.

Institutional flows positive, Nifty-Flow correlation breaks in 4QFY24

Institutional flows were materially positive for FY24. Net domestic and foreign flows in the secondary equity market amounted to Rs3609bn. Foreign Portfolio Investors (FPIs) were net buyers of Rs1510bn while domestic institutions pumped in Rs2099bn. FPIs were net sellers in four out of twelve months. The nifty-institutional flow correlation however completely broke down in 4QFY24 when Nifty gained less than 3% despite Rs1042bn of net institutional flows.

Debt and Currency Markets

Indian debt and currency markets were mostly stable during FY24, showing little volatility. RBI did not make any changes to the policy rates.

The benchmark 10-year treasury bond yields eased to 7.05% from 7.3% a year earlier. USDINR weakened 1.8% to 83.37 from 81.87 a year earlier. Lending and term deposit rates were higher by up to 50bps. The yield curve shifted lower and flattened completely.

The RBI continued with its “withdrawal of accommodation” policy stance. The liquidity position therefore remained tight for most of the year. The credit growth outstripped the deposit growth. Overnight and call money rates were accordingly higher by 70-90bps.

Economic conditions

Overall GDP growth was consistent and strong for the first three-quarters of FY24. Beating all forecasts and consensus estimates, FY24 GDP is poised to show a growth of over 7% yoy. FY25 GDP growth estimates have accordingly been upgraded.

·         CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% (except for a short spike in 1QFY24). Core inflation eased below 4% in 4QFY24.

·         Real rates have mostly remained in positive territory during FY24.

·         Private consumption, household savings, and government consumption expenditure were some of the distinct areas of slowdown.

·         Project awarding activity witnessed a marked slowdown in 2HFY24.

·         Rural markets gave mixed signals of demand recovery. For example, farm tractor sales declined again in 2HFY24, while 2w-3w sales staged some recovery. FMCG companies’ commentary remained mostly cautious about the consumption demand recovery in rural areas.

·         External conditions were broadly good. The current account balance was manageable at 1.2% of GDP during 9MFY24, supported mostly by services and remittances. Merchandise trade balance remained negative.

·         Electronics (6.5% of total exports) and Pharmaceutical (6.3% of total exports) registered good growth, while traditional petroleum products, gems and jewelry, and textiles recorded materially negative growth during 9MFY24.

·         Net FDI flows continued to decline for the third consecutive year.

Commodities

FY24 was a mixed year for commodities. Precious metals (Gold +15%) and crude oil (Brent 10%) recorded decent gains, while industrial metals (Nickel -30%, Zinc -17%, Steel -19%), natural gas (-21%), coal (-28%), and agri commodities (Wheat -19%, Soy -21%) ended the year with strong losses.

Crypto shine

Cryptocurrencies like Bitcoin staged a massive recovery during FY24, ending the year at all-time high levels. The newest asset category gained a wider acceptance during the year from market participants and regulators.