Indian benchmarks surged to new record highs during the month of September, driven by strong FII selling and fueled by optimism over interest rate cuts from major global economies. Investor sentiment continues to remain strong even as Chinese policymakers unveiled a raft of new measures aimed at reviving the stock markets, together with an easing of monetary policy and bringing greater stability to the property markets. The forthcoming months of the year are likely to put a spotlight on the global state of the economy, as multiple nations including the US enter the elections phase.
With Interest rates on the downtrend across the globe, there is increased focus on keeping recession under control and ensuring inflationary pressures are kept under control. Geopolitical tensions continue to loom as rising tensions in Russia and Ukraine impact crude oil prices.
The India story continues to remain strong. However, our dependence on crude oil imports and the increased resilience of developed economies could likely put a dent on India’s fiscal calculations if crude oil prices continue to rise, thus prolonging our fight against inflation.
Foreign inflows into India hit a record high during the month of September buoyed by the falling bond yields in the US and their recent rate cut announcement. Going forward too, we’re likely to witness a higher magnitude of FII inflows into the country based on multiple factors that center around the stabilization of the Indian Rupee, and the overall positive sentiment around India’s robust macroeconomic indicators.
An increased demand for mutual funds coming in from smaller tier 2 cities has also reflects the massive growth and demand for mutual fund investments products, a trend that’s been growing over the years. With valuations in the large cap space remaining sustainable, and the demand for passive funds going up massively, there’s been an advent of newer sources for Alpha creation. With sectors that support new age businesses being relatively advantaged, themes like digital, EVs, Renewable energy, defense, luxury, and beneficiaries of unorganized to organized sectors are finding a strong foothold when it comes to earnings growth.
The IPO frenzy in India has been getting stronger with over 41 companies filing their IPO documents during the month of September 2024, the highest ever in a single month. The demand for investing in IPO’s despite the heightened risks associated with such investments reflects the Indian investor’s sentiment. A huge change from the traditional mindset of investing in fixed deposits to taking on more risk by investing in ‘newer’ products. A trend that we’re likely to see continuing into the rest of the year.
Another important factor that we’ve noted is the rising levels of cash that mutual fund managers have held across their portfolios. Lackluster earnings during the first quarter of the fiscal and saw a lot of companies fall short of the consensus numbers. Despite which, we’ve continued to witness a surge in valuations. The higher cash holding is an outcome of overstretched valuations across various pockets, without a strong support from fundamentals. While this could indicate expectations of a correction with managers stockpiling on cash, we expect the correction if any to remain a minor one in the coming months.
Overall, the markets continue to remain resilient as multiple factors work in support of the growth. Risks and geopolitical tensions notwithstanding, investor sentiments and expectations around growth, the magnitude and pace of development and the policymaker’s well thought out measures will continue to propel the markets forward.
