Equity market

BSE-30 and Nifty-50 indices consolidated for the month with minor correction at -0.7% and -0.3% respectively. Mid-cap/Small Cap index outperformed the large cap peer indices with a gain of 1.7% and -0.1% respectively. On the sectoral front IT, Oil & Gas and Healthcare were the sectors reporting weak performance. Capital Goods, Auto, Metals, Power and Real Estate were the major outperforming sectors for the month.

The month of May 2024 was fairly rangebound with some cautiousness ahead of General Election results on June 4, 2024. Mid Cap segment of the market continued to deliver high returns trading at close to new all-time high levels.



Inflation: India’s Wholesale Price Inflation (WPI) Index came in at marginal positive 1.26% YoY during the current month as compared to 0.53% for the previous month on account of stable fuel and lower commodity prices.

CPI inflation stood at 4.83% (4.85%). Inflation is expected to continue to moderate gradually.

Growth: India’s real GDP (at market prices) grew by 7.8% YoY in the March-24 quarter (Q4FY24) and by 8.6% YoY in Q3FY24. FY24 GDP growth stood at 8.2% ahead of the estimated 7.6% for the year. Capital formation growth stood at 6.5% for Q4FY24 and 9% for full year FY24. Going forward, consensus has upgraded estimates to a range of 6.6%-7%% GDP growth for FY25.

Other macro developments (fiscal deficit and household savings)
India’s Q3FY24 current account balance registered a deficit of US$ 10.5bn (1.2% of GDP) from a deficit of US$8.3bn (1% of GDP) in Q2FY24. The deficit represents better manufacturing/services exports from India.

India’s fiscal deficit came much lower than forecasted at 5.6% for FY24 on account of lower revenue expenditure. Government has announced a path to reduce fiscal deficit to 5.1% for FY25 and below 4.5% in FY26.

FY23 net household financial savings rate stood at 5.1% of GDP (7.2% for FY22). The same ratio had moved higher during the pandemic period to 12% in FY21 compared to 7.7% in FY20.

Market Outlook:
General Election 2024 results are turning out to be a negative surprise for the market. Expectations were for the BJP to get a comfortable majority, however as of writing this note (1pm IST, June 4, 2024) BJP is not getting a clear majority on its own with seats of 240+ (need 272 to win), however the NDA ie BJP along with pre poll alliance is comfortably above the 272 mark at 290+. The market including exit polls was assuming 350+ seats for the NDA. With this there are all kinds of doubts emerging among the investor community in terms of who has more bargaining power among the NDA alliance and which party gets to decide policy moves of the government – will the government remain as disciplined from a budget deficit perspective and focus more on the long term and capital investment rather than freebies.

A big plus for the government and the economy is that FY24 budget deficit was contained at 5.6%, below the original target of 5.8%. Additionally, The Reserve Bank of India has announced a very strong annual dividend payout of INR 2.1tn against the budgeted number of approximately INR 1tn. FY25 revenue is now starting higher by 0.4% of GDP against the earlier expectations allowing room for the government to work on higher capital expenditure to boost economic activity.

Valuations for the market specially the PSU (public sector undertakings) segment of the market were trading at higher than past average levels and it is logical to assume, in the short-term, PE premium that India markets were trading at may reduce. Long term outlook remains positive for the economy in terms of Credit cycle, Real Estate demand being more than supply – ready inventory very low, very strong construction activity ongoing. We would advise investors to gradually use correction, if any, as an opportunity to benefit from the long-term trend.

We in our portfolios are focused on companies which can grow earnings at a fast pace and most importantly balance sheets/cash flow being on the positive side with less leverage.

Long-term structural drivers like demographic advantage, low household debt, limited penetration across different consumer categories, increased potential for financial savings and urbanization makes India a compelling equity story from medium to long term perspective.

We believe investors would be well advised to invest with medium to long term perspective and systematically increase exposure to Indian equity markets.