“ALL IS WELL THAT ENDS
WELL.”
Mega event of
Lok Sabha Elections is behind us. As expected,
BJP retained power but with the coalition support. Economy has grown at a
faster pace in the last decade under the leadership of PM Modi and same will be
continued for another 5 years. Markets were expecting Stability &
Continuity from these elections and same were delivered to them. Even the union
ministers were retained with same portfolios, with BJP retaining majority of
the share.
The coalition
will approve most of the economic policies & reforms. However, the partners
will have a say in them and might me modified to suit them. Social reforms such
as CAA & UCC may take a back seat or will be modified from what was
originally planned. Moral of the story is MODI is
back as PM and his ambition to make India a developed economy by 2047 remains
intact.
Positives in
May:
- India’s Q4 GDP
Grows 7.8%, Surpasses Estimates; FY24 Growth At 8.2%. - May 2024 GST
Collections at Rs 1.73 Lakh Crore; Up 10% Year-On-Year. - S&P
upgrades outlook on India’s sovereign rating to ‘positive’. - April CPI
inflation eases to 4.83% vs 4.85% in March 2024. - Bumper RBI
dividend of Rs 2.11 trillion to give govt more fiscal room. - BSE Market Cap
Hits $5 Trillion For The 1St Time. Market Capitalization-To-GDP Ratio at All
Time High of 140.2%.
June 2024 – What to look
forward? In our last month’s market outlook, we had said that market
performance this year is entirely dependent on below factors:
- Fed rate cuts,
2) War, 3) Elections
Fed rate cuts: GDP, PMI no’s
cooling off, inflation & job data sticky, hence Fed will maintain status
quo now, with probability of at least 2 rate cuts this year gaining momentum.
War: No major
escalations now limited to small attacks. Talks for peace solution going on,
can see some good news on this front.
Elections: With NDA Govt
formed and Modi back as PM, elections are done and dusted, focus now on
continuity of growth & new reforms. Budget in July end will now be a key
event to watch.
Since all above factors
moving in positive directions, markets are scaling up
new highs. New factors to watch for the entire year now will be:
- Earnings
growth - Valuations
- DIIs Flows
- China +1
Earnings Growth: The corporate
earnings for the fourth quarter of FY24 were strong, with widespread
outperformance across aggregates. The earnings beat was driven by domestic
cyclicals, such as Autos and Financials, along with Healthcare, Capital Goods,
and Cement, while global cyclicals like Metals and Oil & Gas dragged down
overall profitability.
Nifty 50 delivered a
strong beat with a net profit growth of 12% year-on-year (YoY). Five Nifty
companies, HDFC Bank, State Bank of India (SBI), ONGC, Tata Motors,
and Coal India, contributed 72% of the incremental YoY accretion in
earnings. Ex-Metals and Oil & Gas, Nifty’s earnings grew 16% YoY.
Hence better earnings have
helped bringing valuations in fair zone again. Nifty is trading at a 12-month
forward P/E of 19.2x, at a 6% discount to its own long-period average (LPA).
Valuations: Indian markets
are not cheap in valuations at present, but they are not over valued also. With
all economic & geo-political indicators in its favour, it is obvious to
command certain premium over others and this will be the norm going ahead
unless and until there is some shift from its existing stance. It can be
political or policy-wise, both scenarios highly unlikely to happen. So, every
small dip will be good opportunity to buy rather than waiting for heavy
corrections.
DIIs Flows:
Above data is
a clear indicator that Indian markets are now not dependent on FIIs money.
Money flowing from SIP’s, Insurance Policies, NPS & Provident Funds have
gradually become so big that it is enough to hold back Indexes on its own
buying strength.
Indian
investors shift from traditional products like FDs, Gold & Real Estate to
Mutual Funds and Direct equities is fuelling this rally. This money is there
for long term and not to go away quickly. Hence placing a bet against Indian
markets will be suicidal now.
China +1: Post Covid,
countries across the globe has identified that they cannot be dependent on
China, which is now Worlds Manufacturing Hub. China’s current regime is
unpredictable, autocratic and pro-conflicts. During Covid, supplies were hit
high due to strict and long lockdowns by Chinese Govt. Any future attempt to
annex Taiwan will make matters worse and sanctions will hit supplies badly.
Hence world
needs alternative, big enough to take care of China. Vietnam, Indonesia are
smaller countries not big enough to provide alternative to China. India is the
only country in size & resources which can be an apt alternative to China.
Indian Govt
has already identified this opportunity in its last regime and already taken
action on this front. PLI scheme, corporate tax cuts, infra build up are some
of the initiatives India has started. Manufacturing boom will also spur up
other sectors related to it like Power, Infra, Housing, Consumption & Auto.
Hence, we can
see more allocation of funds this budget in these sectors. India’s imports will
decrease drastically, fiscal deficit will improve, and ratings will be
upgraded. India’s domestic economy is so huge that even in case of
geo-political tensions or global recession, internal demand & consumption
will take care of the economy as compared to peers.
Conclusion: We have
entered a heavy bull run and above factors will take markets to new high. Any
dips should be bought in. Focused sectors like Defence, Power, Manufacturing,
Housing, Auto & Consumption will do much better than traditional indexes.
