The first of the current financial year progressed on the predicted lines. There were no remarkable surprises either in the global macroeconomic developments or market performance. The focus of market participants and policymakers remained mostly on the macroeconomic parameters. Economic growth and trade moderated worldwide with a few exceptions like India. Inflation remained elevated but under control. Monetary policy continued to tighten resulting in higher bond yields, tighter liquidity, and rising cost of capital. Geopolitical conditions remained mostly unchanged.
Commodity prices moved in tandem with the macroeconomic, geopolitical, and environmental conditions. Clouded growth outlook led the industrial metals down; higher bond yields and stronger USD weighed the precious metals lower, depleted strategic reserves and larger output cut by OPEC+ led the energy prices higher, and better crop and improvement in shipments from war zones led the agri produce prices lower.
Chinese equities (especially in Hong Kong) performed the worst amongst peers; whereas Indian equities were amongst the best performing assets.
India did well on most parameters; domestic flows ex-SIP negative
The Indian economy grew ~8% in 1QFY24 and is expected to log an average growth of 7.25% in 1HFY24. The benchmark bond yields (10yr G-Sec) withstood the pressures of rising global yields and potential fiscal pressures due to rising crude prices amidst a heavy election schedule, and eased 5bps. Despite the cloudy CAD outlook, INR remained one of the strongest emerging market currencies. It weakened ~1% against USD, but recorded decent gains against EUR, JPY and GBP.
The consumer price inflation remained elevated, within the RBI tolerance band, primarily due to vegetable and fruit prices; whereas wholesale prices entered the deflation zone. RBI has maintained a status quo on the benchmark rates since the last 25bps hike in February 2023; and continued with the withdrawal of accommodation provided during the Covid period. At the end of 1HFY24, the banking system liquidity was in negative territory vs the peak surplus of Rs12trn during 2022.
Corporate earnings trajectory continued to improve, with NIFTY50 RoE breaching the 15% mark for the first time after 2015. The breadth of earning also improved with a larger number of companies and sectors participating.
The benchmark Nifty50 gained ~13% during 1HFY24. The broader markets however did extremely well with small cap (~42%), midcap (+35%), and Nifty 500 (+19%) registering strong gains. The gains were led by rate-sensitive sectors like Realty, Auto (especially ancillaries), and PSU Banks. Infrastructure, Capex and healthcare themes also outperformed the benchmark indices. Non-PSU financials and services were notable underperformers.
Within the capex and infra theme, defense production, power utilities & equipment, railways ancillaries, and engineering design services were the most notable gainers. Chemicals and consumer durables were some of the notable underperformers.
Foreign investors were net buyers in five out of six months during 1HFY24. Net FPI flows in the secondary market exceeded Rs1.24trn. Domestic institutions on the other hand were not as enthusiastic. The net domestic flows were a meager Rs141bn during 1HFY24. However, adjusted for the strong SIP flows (appx Rs140bn/month), the domestic flows have been strongly negative.
