The month gone by – A snapshot

Global economy and markets: Global equities witnessed a rally in November as markets started pricing the end of global rate hiking cycle. This was supported by signs of moderating inflation across most countries. Global growth continues to be resilient but varies across economies. For the September quarter, US GDP growth has been revised upwards to 5.2%, while Eurozone and Japan continue to face headwinds. IMF expects China to perform better than expected as policymakers have announced fiscal measures to support the economy.

The MSCI World Index was up by 9% in November while MSCI Emerging Market index was up by 8%. Crude oil prices declined by 5% during the month on account of concerns over slowing demand and lack of consensus among OPEC+ countries on output cuts.

Economy: Indian Q2 FY 2024 GDP growth higher than expected

India’s GDP growth during Q2 FY2024 was better than expected at 7.6% y-y. Manufacturing and construction sectors were key drivers supported by government’s strong focus on capital expenditure. Private consumption continues to remain muted. Most economists have raised their GDP growth forecasts for FY 2024.

The Union Cabinet has approved the extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) scheme for an additional five years. The provision of free food grains under this scheme is expected to aid vulnerable sections of society.

As a prudential measure, RBI has raised risk weights on unsecured loans as well as loans to NBFCs. These measures may lead to moderation in credit growth, going forward.

Equity markets: Buoyancy continues

Indian equity markets rallied in line with the strong rally in global markets. Nifty index was up 6% in November. The Oil & Gas and Power sectors outperformed while Fast Moving Consumer Goods (FMCG) and Banking sectors underperformed. The Mid and Small Cap indices continued to outperform large caps. Foreign Institutional Investors (FIIs) bought Indian equities worth US$ 2.3bn last month.

Outlook: With rising expectations of soft landing in US and likely end of monetary tightening cycle by global central banks, the prospects of global economic stability have improved. Commodity prices have been range bound and inflationary pressures have been subsiding. These factors augur well for equity markets.

The outlook for Indian equities remains constructive on the back of improving economic growth, strong corporate earnings, continued momentum in flows and stable political regime. We maintain a positive view on equities over the medium to long term.

Fixed Income market: RBI to maintain focus on inflation

The retail inflation eased further to 4.9% in October. However, it remains above RBI’s target of 4%. Given the upsurge in prices of some food items in recent weeks, most analysts expect RBI to maintain a cautious stance in this month’s monetary policy meeting.

Outlook: The impending inclusion of Indian government securities in JP Morgan’s suite of emerging market bond indices next year, has led to strong revival of interest from foreign investors. FIIs purchased US$ 1.7 bn of domestic debt last month.

The strong demand from foreign investors combined with decline in global yields led to easing of domestic debt yields in November. With RBI likely to maintain a cautious monetary policy stance, we expect domestic yields to trade range bound in the near term.