The first half of the year 2024 has been good for global markets. Despite disappointment on rate cuts, geopolitical concerns, sticky inflation, and political changes in many countries, stocks, precious metals, industrial commodities and crypto made a steady move up with very relatively low volatility.
A notable feature of the global market movement in 1H2024 was the stark underperformance of Asia ex Japan, even though the Japanese equities being the best equity markets amongst the major global markets. Brazil also underperformed despite a decent rally in commodities.
Another notable feature of global markets was the narrow market breadth of US markets. Though the benchmark indices scaled new highs, it was mostly due to parabolic rise in a handful of technology stocks.
At present equity markets appear strong on the back of a resilient demand environment, well anchored inflationary expectations and peak interest rates. Fears of earnings failing to match the stock price rise, escalation in geopolitical tensions, spike in energy prices, uncertainties about the policy direction post the US presidential elections, and erratic weather conditions are some points of concern.
India performance – 1H2024
Indian markets performed very well in the first half of the year 2024. Though Indian equities underperformed the developed markets in line with the global trend, it did very well within the emerging market universe. The key highlights of the India market performance could be listed as follows:
· The benchmark Nifty50 gained ~10.5% during 1H2024; while the Midcap (+20.7%) and Small Cap (+21%) did much better. Consequently, overall market breadth has been strong.
· Two third of the market gains came in the month of June 2024, post the elections. This was contrary to the pre-election consensus that BJP failing to secure a majority on its own may result in sharp decline in market.
· The total market capitalization of NSE is higher by ~21%; more than gains in the benchmark indices – implying that stronger gains have occurred in the section of the market beyond indices.
· The number sector outperforming the benchmark indices far outnumbers the sector underperforming. The rally was led by Realty, PSUs (mostly power, defense, and railway), Auto, infra and energy. The Capital Goods and Heavy Engineering sector have been the flavor for the period. Particularly, the businesses catering to sectors like defense, railways, and road construction did extremely well. Banks, IT Services and FMCG were notable underperformers.
· Ship builders were the notable outperformers amongst the individual stocks. No conspicuous sectoral trend was seen for the losers.
· Institutional flows to the secondary equity markets were positive for five out of the six months. 1H2024 witnessed a total flow of ~INR3559bn, despite FPIs outflows of Rs320bn. The correlation of institutional flows with Nifty returns remained poor (~48%).
· The rates, currency and yields were stable in 1H2024. Policy rates were unchanged; while money market rates were marginally higher by 15bps. Deposit rates did not see much change while lending rates were higher by 10-15bps.
· The overall Indian yield curve shifted lower and flattened completely, as the RBI maintained the status quo on policy stance.
· The economic growth surprised on the higher side with the Indian economy recording a growth of 8.2% for FY24, beating all forecasts materially. Fiscal balance also improved with FY24RE fiscal deficit coming at 5.8% and FY25BE of fiscal deficit at 5.1%.
· CPI inflation has inched closer to the lower bound of the RBI’s tolerance band of 4%-6% with May’24 CPI inflation number coming at 4.75%.
- Corporate performance has shown resilience in recent quarters, with sales growth recovering, margins improving and RoE rising. Banks reported consistent improvement in the asset quality and profitability.
