The first half of the financial year FY25 has been good for financial and commodity markets. Despite elevated geopolitical concerns, inflation, and political changes in many countries, stocks, precious metals, industrial commodities and crypto made a steady move up, though not without higher volatility.
In 1HFY25, the global central bankers embarked on a path of monetary easing, with several of them cutting rates. Most notably, the People’s Bank of China (PBoC) and the Federal Reserve of the US, did rather aggressive easing. The Chinese (and Hong Kong) equities rose sharply in the last week of the 1HFY25 to erase months of underperformance. Indian equities were amongst the top performing global assets for 1HFY25. Japan, South Korea and European equities were notable underperformers.
Another notable feature of global markets was the sharp rally in precious metal. The central bankers across emerging markets accelerated their gold accumulation, in view of the geopolitical developments and trade tensions.
At present equity markets appear little jittery in view of the recent escalation in the middle east and resurfacing of the Sino-US trade tensions. Otherwise also, the post Covid growth momentum is evidently slowing down with stimulated demand waning across the globe. Fears of earnings failing to match the stock prices’ trajectory are rising. Uncertainties about the policy direction post the US presidential elections, and erratic weather conditions are some other points of concern.
India performance – 1HFY25
Indian markets performed very well in the first half of the financial year FY25. Indian equities have been amongst the top performing global assets. Indian bonds and currency have also been mostly stable. The key highlights of the India market performance could be listed as follows:
· The benchmark Nifty50 gained 15.6% during 1HFY25; while the Midcap (+25.1%) and Small Cap (+25.6%) did much better. Consequently, overall market breadth has been strong.
· Two third of the market gains came in the months of June and July 2024, post the elections. This was contrary to the pre-election consensus that the BJP failing to secure a majority on its own may result in sharp decline in market.
· The total market capitalization of the NSE is higher by ~22.7%; more than gains in the benchmark indices – implying that stronger gains have occurred in the section of the market beyond indices.
· The number of sectors outperforming the benchmark indices far outnumbers the sector underperforming. The rally was led by Consumers, metals, Pharma, and Realty sectors. PSU Banks was the only segment of the market that yielded negative returns.
· Ship builders and chemicals were the notable outperformers amongst the individual stocks. Smaller PSU banks were notable losers.
· Institutional flows to the secondary equity markets were positive for all six months. 1HFY25 witnessed a total flow of ~INR2697bn, out of which FPIs invested ~Rs375bn. The correlation of institutional flows with Nifty returns remained poor (~43%).
· The rates, currency and yields were stable in 1HFY25. Policy rates were unchanged; while money market rates were marginally lower by 20bps. Deposit rates did not see much change while lending rates were higher by 15bps.
· The overall Indian yield curve shifted lower and flattened completely, as the RBI maintained the status quo on policy stance.
· The economic growth for FY25 is expected to be ~7%, lower than the 8.2% achieved in FY24. Fiscal balance is expected to be better with FY25BE fiscal deficit projected at 5.1% (vs FY24RE at 5.8%).
· CPI inflation has inched closer to the lower bound of the RBI’s tolerance band of 4%-6% with August 24 CPI inflation number coming at 4.2%.
- Corporate performance has shown signs of slowing down in 1QFY25 with sales growth, margins improvement and RoE showing signs of fatigue. The steep post Covid upward earnings growth trajectory is now plateauing and showing signs of normalizing.
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