India’s growth trajectory continued in a positive direction during the month of February 2024, with India’s stock market setting the stage for a compelling narrative of resilience, adaptability, and opportunity.

For instance, Auto component exports are expected to grow and reach US$ 30 billion in FY26. This growth is further supported by a 100% FDA investment in the auto components sector. India is also the 2^nd largest producer of steel globally and this bodes as a huge advantage for related businesses that use steel as a raw material. Within the Financial domain, the growth of Fintech’s, the cleaning up of debt from the balance sheets of PSU Banks and the digitalisation of the sector has brought about sweeping changes. The push for green energy and the usage of renewable source will make the country’s growth sustainable over the long-term in addition to encouraging import substitution.

The Interim Union Budget 2024-25 that was presented in the month of February 2024 laid out a clear roadmap of the government’s accomplishments. With a focus on green growth, Infrastructural development, tourism and women empowerment, the budget created a roadmap of what to expect going forward, if the current government comes into power.

The digital revolution led by the scope and growth of digital transactions, UPI and tech enabled services has continued to bolster the economy and bring about a massive disruption amongst the Indian diaspora. In view of the overall growth, the Central Bank decided to keep rated unchanged during their February Monetary Policy Meeting, signalling an accommodative stance. This decision was backed by multiple factors:

• The National Statistical Office placed the year-on-year real GDP growth for FY2023-24 at 7.3%.
• The country’s growth rate has remained consistent despite an adverse monsoon, the lack of which impacted the agricultural output. This also impacted vegetable prices.
• A decline in commodity prices bodes well for domestic manufacturers as input costs witness a decreasing trend.
• Consumption led expenditure has led to a demand led economy as supply chains are revamped to meet increasing demand.
• Despite geo-political tensions impacting the supply of crude oil, domestic fuel prices have largely remained stable.

This growth is also evident in the levels of inflow of domestic investments into mutual funds. Despite a net FII outflow that we have witnessed over the past 2 months, domestic investments have led to a significant growth in the Indian markets. The markets too remained resilient with sectors like Oil, PSU and Gas, Auto and Realty posting positive gains during the month of February 2024. Overall, Nifty indices posted returns in the green, with the exception of IT, FMCG and Media.

Discussions around China+1 have been gaining traction, impacted by restrictions placed during Covid. India’s exports are benefiting from China+1 which can compensate for a likely slowdown arising from the global geo-political tensions. Recent trade deficit data has also remained favourable, and this works in India’s favour.

US bond yields inverted in February 2024, as investors weighed in the possibility of a recession. If the yield curve sustains, India’s 10-year benchmark will likely ease to 7%. Historically, every US recession since the past 5 decades has been preceded by inversion of the yield curve. The impact of this will likely lead to a positive FII flow into India.

 As the Indian central Bank allows liquidity to flow into the system, spending levels are likely to increase, eventually leading to a rate cut. Owing to this, shorter term yields are likely to come under pressure. On the debt side, arbitrage funds are likely to find favour amongst investors, largely owing to the taxation benefit that this category offers. Attractive rates over the medium term can provide better opportunities for investors owing to the expected equity market volatility, thereby allowing investors unwind trades where spreads are compressed and deploy them in better avenues. Due to muted returns in the past, demand for arbitrage schemes have remained low, which has resulted in spreads remaining reasonable and this makes it an interesting category for investors who want to park a portion of their debt investments.