From the Green, White, Blue and Yellow Revolution, to the ‘Amrit Kaal’, the journey has been a long and fruitful one. This could very well be India’s Golden Decade. Even as global economies grapple with inflation and a slowdown in growth led by political and financial headwinds, the India story continues to witness strong growth. Rooted in ancient Vedic culture, the Amrit Kaal is laid on the foundation of the 5 ‘Panch Pranas’ or the 5 fundamental pillars that will remain the focus areas for growth – economy, infrastructure, systems, demography and demand.

Creating a mindset of growth and innovation; backed by technology, the Indian markets have been witnessing a huge disruption. Be it in the magnitude of digital payments, technology led settlement, advancements in AI or infrastructure and medical advancements; the economy is poised for growth and this is reflected in the Q1FY24 GDP numbers which have come in at a healthy 7.8%. A multitude of factors have also led to the massive increase in the number of small businesses and IPO’s over the recent years, especially led by the services and the manufacturing industries. An increased investor interest in AIF’s, PMS and Mutual funds are also a reflection of the shift in the mindset of the Indian investor away from traditional forms of investing.

Even as FII investments booked profits during the month of August and September, Domestic investors continued to lead the mantle by investing in mutual funds and this is reflected in the increased inflows into equity funds as can be seen from AMFI data. The significant increase in the number of mutual fund folios and the continued investor confidence is a reflection of the positive sentiment that can be witnessed across the market. This is despite the extreme volatility that the markets witnessed, especially during the second half of September. The impact of increasing oil prices, rising interest rates and a strengthening US Dollar has been putting some pressure on FII investments during the month. October has historically remained a favorable month for markets and we expect so see a revival during the month. Having said that, the month of October is crucial, as we await the outcome of another RBI Monetary Policy Committee meeting. This along with a slew of quarter end economic data could have an impact on the directional movements in the markets.

Private consumption and investment demand have shown signs of robust growth, led by the central and state government capex. The month of September 2023 marked record breaking sales in the automobile sector – a trend we think will continue over the medium term. Driven by the demand for alternate fuel options like EV’s, blended fuel, and expectations around advanced fuel options like hydrogen powered vehicles for instance, the autos industry is set to witness a massive change, the beneficiaries of which will likely be the auto ancillaries, transportation, logistics and related sectors. The renewable energy and the power sectors too have witnessed significant growth owing to the increasing demand and India’s focus on promoting renewable sources like solar and wind energy. The government’s aim to reduce India’s carbon footprint by 45% by 2030 as compared to 2005 levels is a huge move towards promoting clean sources of energy – a sector that we expect will witness significant growth over the medium term.

Small and Mid-cap funds have remained the darling of investors over the past few months and have witnessed significant inflows. In fact, inflows into small cap fund accounted for about 55% of the total inflows in the month of July 2023. Small and mid-cap companies have been witnessing significant growth, and we think that this is likely to continue into October. Import restrictions that have been put into place by the government will encourage a larger number of smaller market participants. The Production Linked Incentive Scheme which is aimed to boost domestic production capabilities is another positive. Overall, we think that a prudent investor who is able to actively allocate across the multi-cap/large-cap sectors in addition to investing in small and mid-caps should be able to reap positive returns over the long term. A pause in the rate hike cycle since January 2023 has been in line with market expectations.  However, rate cuts continue to seem slightly distant. A tactical allocation towards a combination on dynamic bond funds, corporate bond funds and short term funds should be the way forward until such time that the interest rate direction changes.