“Money flows in the direction of value.”
Equity markets continued to make positive strides in Jan’24, marking new highs before
cooling off towards the end of the month. Positive global environment, benign
crude oil prices and healthy corporate earnings, supported the market
sentiments. Nifty oscillated in a wide range of ~1,000 points, pulling back
from record highs to close flat month on month. Broader market however
outperformed with Nifty Midcap 100 and Smallcap 100, up ~5% each.
Key Events so far:
- The US Fed kept its interest rate unchanged for the fourth
consecutive time, while hinting the rate cut might take some more time. - RBI kept rates unchanged for a sixth consecutive meeting and
signalled that interest rates may not be lowered in a hurry. - The Interim Budget managed to tick many right boxes. The government continued
to follow the fiscal consolidation path at the same time maintained its
investment led spending growth strategy. - GST collections surge to Rs.1.72 lakh crore in Jan’24, its second-highest
monthly collection. - India’s Services PMI rose to six-month high to 61.8.
- Equity mutual funds witnessed inflows of Rs. 21,780 crores
while SIP hit a fresh record of Rs. 18,839 crores. - The 3QFY24 corporate earnings has been in line so far.
Earnings of the 33 Nifty companies that have declared results until 1-Feb-24
jumped 21% YoY (vs. est. of +20% YoY). - Regular attacks by Yemen backed Houthi militants on
ships passing through Red Sea has blocked a major trade route and led to
increase in crude oil prices, brent crude trading above USD80 per barrel. - FIIs have sold heavily in January 35,978 Cr of Equity while
DIIs were net buyers with 26,744 Cr in Equity and the trend has continued in
February as well.
Feb Outlook:
As on January 31, 2024, NIFTY 50 was trading at ~18x FY26E price to earnings
multiple. Further, Market cap-to-GDP stood over 100% (based on CY25 GDP
estimates) and the gap between 10Y G-sec yield and 1Y-Forward NIFTY 50 earnings
yield* remains at elevated level. *Earnings yield = 1/ (one year forward
P/E)
In general, current valuation indicators are at
premium to their historical averages. However, one should view these valuations
in the context of structurally attractive nominal GDP growth, a healthy
corporate earnings outlook, and robust de-levered corporate and banking balance
sheets.
Markets dipped in January, but also rebounded sharply. We expect a
healthy 5-7% correction broad based in markets in February. Hence, we recommend
allocating 100% in Debt funds at present. Please note, we do not expect a
long-term correction and only a sharp short one, good enough to re-enter at
lower levels, which will enhance portfolio yield by 4-5%, even if the markets
underperform the whole year.
Happy Investing!
