The month gone by – A snapshot

Global markets: Global equity markets rallied in June as favourable inflation data in the US raised hopes of a ‘soft landing’ of the economy. The World Bank stated that they ‘see a runway for a soft landing’. Higher growth expectations from US, China, and India, has led the World Bank to raise global growth forecasts for 2024.

The announcement of snap elections in the United Kingdom and France have added to heightened political uncertainty in Europe. Higher than expected inflation reading from Canada and Australia have led to some degree of monetary policy uncertainty. Bank of Japan’s policymakers have indicated that they may raise policy rates further in the coming months, even as the Yen has depreciated to multi-decade low against the US Dollar.

MSCI World Index rallied by 2% in June, while MSCI Emerging Market Index rose by 4%. Amidst signs of political and policy continuity post the general elections, MSCI India outperformed global markets with a 7% return. Continuing supply restrictions by OPEC+ countries led to a 6% rally in crude oil price last month.

Economy: Growth optimism continues

High frequency indicators such as PMI data and core industrial sector growth indicate that growth momentum in the economy continues. The RBI Governor provided an optimistic assessment of the economy, while the World Bank and global rating agency Fitch, have raised current year’s growth forecast for India. Political continuity after the recently concluded general elections is indicative of policy continuity as well. The final FY25 union budget, to be presented this month, is likely to focus on fiscal consolidation, enhanced allocation to capital expenditure and supporting consumption.

Equity Markets: Attains new high

Indian equity markets soared to new all-time highs with the Nifty index registering 6.6% gain in the month of June. Mid-cap (+7.8%) and small-cap (+9.7%) indices continued to outperform large-caps owing to better earnings growth expectations and higher representation of domestic-facing sectors. Private Banking & Telecom sectors outperformed while Power and Metals sectors underperformed. Inflows remained strong with both DIIs (Domestic Institutional Investors) and FIIs (Foreign Institutional Investors) investing US$ 3.4bn and US$ 3.1bn respectively.

Outlook: While global economic environment remains uncertain, signs of green shoots are now emerging with global PMIs remaining in expansionary mode amidst reducing inflationary pressures. Major economies are witnessing improved growth outlook. With sustained improvement in the macro-economic situation, healthy corporate profit cycle and continued trend towards financialisaton of savings, outlook for Indian markets remain strong from a medium to long term perspective.

Fixed Income market: Inflation declines further; foreign inflows continue

The retail inflation in May declined to a one-year low at 4.8% y-y. The underlying core-inflation has declined to a new record low at 3.1%. The government has announced a moderate increase in minimum support prices for the kharif crop. This is likely to help keep food prices in check. However, delayed onset of monsoon rainfall has led to some concerns. RBI continues to maintain a cautious stance and held policy rates unchanged last month. However, some members of the monetary policy committee have started to call for rate cuts, which has reinforced market expectations of monetary easing.

Outlook: FIIs purchased US$ 2.1bn of debt securities in June. Indian government securities have now become part of the JP Morgan emerging market global bond index. This is likely to result in sustained inflow of foreign portfolio flows through FY25. The favourable demand-supply dynamics as well as lower inflation backdrop indicate that the declining trend in yields may sustain in the coming months as well.