Market Watch
Equity Market Overview – October 2024
Domestic Equity Market Update
Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex and Nifty 50 ended lower to the tune of 5.8% and 6.2% (MoM) respectively. While the BSE Midcap index ended lower by 6.9% (MoM), BSE Small cap ended lower by 3.8% (MoM).
In terms of BSE sectoral indices, most of the sectors ended on a negative note. Oil & Gas, Auto and Consumer Durables underperformed the most.
During the month, FPIs were net sellers in equities to the tune of Rs 876 bn. (Data as on 30th October)
Domestic equity markets ended on a negative note amid geopolitical tensions, tightening of F&O rules by SEBI, China’s aggressive fiscal measures which raised concerns about foreign portfolio investments. Further fall was witnessed after the RBI revised its inflation projection higher for Q3 FY25, while maintaining the key rates in its policy meeting. Additional losses were seen after data showed that India’s CPI inflation rose to a nine-month high of 5.49% in September 2024 on the back of rising food prices, which dampened hopes of a rate cut by the RBI. Sell-off across the sectors was seen as sentiment was dented following muted earnings reported by major domestic companies for the second quarter so far. Losses were extended due to persistent selling by foreign portfolio investors in domestic markets and subsequent transfer of funds to China. Additionally, a cautious undertone prevailed due to anxiety over the impending US election and heightened tensions in the Middle East.
Global Market Updates
US equites corrected during the month due to escalating geopolitical tensions in the Middle East and amid a negative reaction to earnings news from major tech giants. Further, the market fell as a slightly faster than expected increase in US core prices for the month of September 2024 may have contributed to growing apprehensions that the US Federal Reserve will reduce interest rates at a slower pace than desired. Uncertainty surrounding the results of the upcoming U.S. presidential election too impacted equity markets performance.
European equity markets ended on a negative note on concerns regarding ongoing tensions in the Middle East, coupled with uncertainty surrounding the results of the upcoming US presidential election. The investors were also responding to a variety of economic indicators from the region, the UK budget, and updates on corporate earnings, and were paying close attention to US economic data which dented the stock market performance.
Brent crude price rallied from USD 71.8 per barrel to USD 73.1 per barrel amid concerns regarding potential interruptions in crude oil supplies, coupled with optimism surrounding an increase in demand from China following the central bank's decision to lower its benchmark lending rates. Furthermore, prices rose amid worries about geopolitical tensions in Middle East.
Most of the Domestic Macro data points showed a strong picture
The World Bank retained India's GDP growth forecast for FY25 at 7% YoY, citing higher agricultural production and robust employment growth from policy initiatives, spurring private consumption as tailwinds. India will be the second fastest growing South Asian nation after Bhutan in FY25 and the fastest growing economy in FY26 with 6.7% YoY growth.
The International Monetary Fund (IMF) kept its growth forecasts for India unchanged at 7% YoY and 6.5% YoY for FY25 and FY26, respectively. The global growth is expected to remain stable yet underwhelming at 3.2% YoY in CY24 and CY25.
The RBI has stuck to its forecast that India’s economy will expand 7.2% YoY in FY25 despite recent evidence showing activity is starting to taper off
The New Delhi-based think tank National Institute of Public Finance and Policy (NIPFP), revised downwards its FY25 GDP growth forecast for India to 6.9-7.1% YoY. Its earlier estimate of 7.1-7.4 % YoY was given during the April 2024 review.
As per the Monthly Economic Survey for September 2024, volume sales of FMCG show a continued improvement in rural demand, supported by rising three-wheeler and tractor sales. In contrast, urban demand has slowed, with urban FMCG sales growth dropping from 10.1% YoY in Q1 FY24 to 2.8% YoY in Q1 FY25.
According to provisional data from the commerce ministry, the index of the eight core industries rose by 2% YoY in September 2024 after contracting by 1.6% YoY in August 2024.
As per MOSPI data, India’s Industrial Production (IIP) contracted by 0.1% YoY in August 2024, against a 4.7% YoY growth in July 2024.
As per RBI data, bank deposit growth slowed down to 11.79% YoY as of October 4, 2024, from 13.6% over the same period in CY23. Credit growth also slowed, with 12.77% YoY growth, down from 19.3% YoY a year ago.
According to RBI data, India's total exports of software services, including services delivered by foreign affiliates of Indian companies, increased to USD 205.2 bn during FY24 from USD 200.6 bn in FY23.
According to latest balance of payments data, RBI recorded a 52% YoY jump in income from its overseas reserve deployments during Q1 FY25, largely driven by higher returns on US treasury bonds and interest on deposits parked with other central banks.
According to Colliers India, India's real estate sector witnessed a record surge in initial public offerings (IPOs), with 123 IPOs listed till October 20, 2024 already surpassing the total for CY 2023, signaling economic optimism and ample market liquidity.
As per rating agency ICRA, robust prices and resilient domestic demand will drive the performance of domestic base metal companies in FY25. International base metal prices rose by 12-14% in 7M FY2025 compared to the same period last year.
According to data from S&P Global, HSBC's flash India Composite Purchasing Managers' Index (PMI) rose to 58.6 in October 2024 from September 2024’s final reading of 58.3.
As per S&P Global, the HSBC services Purchasing Managers' Index fell to 57.7 in September 2024 from 60.9 in August 2024. The flash reading was 58.9. India service sector expanded at a solid pace in September 2024 but growth in total new business, exports and overall output grew at the slowest rates since late-2023.
According to FADA, weak consumer sentiments and heavy rainfall led to a 9.26% YoY drop in retail sales of passenger vehicles, two-wheelers, and commercial vehicles in September 2024. This decline marks the first drop across all segments in FY25. Despite steep discounts, passenger vehicle sales fell nearly 19% YoY.
Mutual funds managed a record Rs 66.2 trillion in assets during the Q2 FY25, rising a 12.3% QoQ, the highest quarterly jump in MF assets in at least five years. During Q1 FY25, the average AUM stood at Rs 59 trillion.
As per AMFI data, equity mutual funds attracted Rs 344.19 bn in September 2024, marking a 10% MoM decline due to a sharp slump in inflow in thematic funds and large-cap funds. Equity-oriented schemes witnessed the lowest level of inflows since April 2024, when investments were Rs 189.17 bn.
According to NSDL, FPIs’ assets under custody in India reached USD1.1 trillion in September 2024, with USD 930 bn invested in equities and the remainder allocated to debt and hybrid instruments. This figure represents a three-fold surge from a low of USD 329 bn in March 2020.
According to ICRA, NBFCs will see asset growth in microfinance lending to moderate to 10-12% YoY in FY25 from 30% YoY growth in FY24, and growth in other unsecured loans will slow significantly to 19-21% YoY in FY25.
According to CRISIL, the cement industry is expected to record slower growth of 7-8% YoY to 475 mn tonnes in FY25, impacted by lower growth in H1 FY25 after registering a double-digit growth from the last two financial years.
According to ICRA, Indian room air-conditioner industry is expected to see 20-25% YoY growth in sales volumes to reach record highs of 12-12.5 mn units in FY25. The sales volumes are expected to grow by 10-12% in FY26.
According to ICRA, Indian apparel exporters are expected to register a 9-11% YoY revenue expansion in FY25 aided primarily by gradual liquidation of retail inventory in key end markets and a shift in global sourcing to India.
According to CRISIL, the revenue of domestic auto component manufacturers is projected to increase 8-10% YoY in FY25, driven by demand from OEMs and the replacement market.
According to Colliers India, the average office rentals nationwide increased from Rs 99.5 per square foot in CY19 to Rs 101.3 per sq ft in CY24.
From Nifty 200 universe, 123 companies have announced their Q2FY25 earnings thus far. At an aggregate level, Sales, EBITDA and PAT have grown by 7.14%, -12.39% and -4.35% YoY, respectively. Excluding Financials, Sales, EBITDA and PAT have grown by 4.35%, -15.85% and -16.01% YoY respectively.
Outlook & Investment Strategy
Going forward, Indian equity market is likely to be driven by incoming macro data points, earnings commentary, FPI/DII flows, and direction in which globally interest rate moves. In US, the Fed is still widely expected to lower rates by a quarter point in next meeting, however concerns remain surrounding the pace of rate cuts as recent inflation data. The outcome of the US presidential election is likely to be in focus which can further determine the market movement in the US.
While, India continues to remain the fastest growing major economy, earnings momentum in the economy seems to be decelerating. In India, the macro-economic conditions continue to remains strong, with the high frequency data like the PMI, Tax collection and forex reserves remaining strong. However, the emerging issue in India seems to be the weakening urban demand. The performance of the companies in the ongoing festive season is likely to drive their stock price movement in the third quarter. The earnings season continues on a weak note, with many companies delivering numbers below expectations and this has led to volatility in the markets.
While the equity market valuations have moved up substantially in the last two years across many sectors and marketcap segments (especially midcap and Smallcap), future earnings in key marketcap segments are witnessing downgrades, which is not good news. FPI selling has also led to pressure on Indian equities leading to volatility and remains a key monitorable. While the inflow into the equity markets have been substantial from the domestic investors, the supply of fresh equity in the form of FPO, IPO and dilution by the promoters have also been substantial.
In such conditions, the tolerance for any bad news in form of Geo political flareups, US election outcome, Domestic election uncertainty (with 2 key states going for polls), large supply of equities and earnings downgrades, has been low and has led to signs of correction in the Indian equity markets.
In the long term, improving domestic macro conditions, favourable demographics, rising per capital income and Strong consumption demand could keep driving the Indian corporate earnings higher and support the equity markets, thus making Indian markets a “buy on dips” play currently.
Fresh Investment deployment strategy could be 40% lumpsum and rest 60% to be staggered over the next 5-6 months. Mutual Fund investors can look to focus on categories like Largecap, Focussed, Equity Hybrid and Multi-asset funds. Aggressive investors may also look at Business Cycle Funds for allocation. All allocations should be done in line with the risk profile and product suitability of the investor.
Debt market overview for the month of October 2024
Domestic banking system liquidity remained in surplus during the month. Banking system liquidity, as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF), stood at a daily average surplus of ~Rs 1.50 trillion in October 2024 as against a daily average surplus of ~Rs 1.01 trillion in the previous month. The call money market traded in the range of ~5.75-6.70% during the month.
Domestic G-sec yields closed higher in October 2024, and the 10-year benchmark, 7.10% G-Sec 2034 bond, ended at 6.85%, compared to the previous month’s close of 6.75%. Indian G-sec yields surged, tracking the rise in US Treasury yields and crude oil prices over an escalating conflict in the Middle East. Yields increased further after US retail sales rose sequentially, dampening expectations of an aggressive interest rate cut by the Fed. The RBI governor’s comment that a rate cut in India at this point would be “very premature” also fueled the rising yields. However, the rise was limited due to the RBI’s decision to shift its stance to ‘neutral’ in its Monetary Policy Committee (MPC) meeting, and due to the inclusion of India's sovereign bonds in the FTSE Russell Emerging Market Government Bond Index.
Inflation in the US continues to trend downward, but remains above the central banks’ target of 2%. Inflation based on the Consumer Price Index (CPI) in the US eased slightly to 2.4% YoY in September 2024 from 2.5% YoY in August 2024 and market expectations of 2.3% YoY. The US core CPI rose marginally to 3.3% YoY in September 2024 as compared to 3.2% YoY in August 2024. As per the minutes of the US Fed’s September FOMC meeting, a "substantial majority" of Fed policymakers supported an interest rate cut in September 2024. FOMC members observed that it would be appropriate to move towards a more neutral stance of policy if the economic data is in line with expectations. The US Gross Domestic Product (GDP) rose by 2.8% YoY in Q3 CY24 after surging by 3.0% YoY in Q2 CY24. Economists had expected another 3.0% YoY jump. The US budget deficit grew to USD 1.83 trillion for the fiscal year ended September 30, 2024, up by USD 138 bn or 8% YoY from USD 1.70 trillion recorded in the previous year. In the Eurozone, the CPI rose 1.7% YoY in September 2024, slower than the 2.2% YoY in August 2024. The European Central Bank cut key interest rates (deposit facility rate) by 25 bps to 3.25%, as policymakers assessed that the disinflation process is on track. As per Eurostat, economic growth of Eurozone improved to 0.9% YoY in Q3 CY24 from 0.6 % YoY in Q2 CY24, exceeding economists' forecast of 0.8% YoY. China’s CPI inflation rose by 0.4% YoY in September 2024 vs. 0.6% YoY in August 2024, lower than market expectations of 0.7% YoY. China's central bank cut two key benchmark interest rates, the one-year Loan Prime Rate (LPR), from 3.35% to 3.10%, and the five-year LPR, the benchmark for mortgage loans, from 3.85% to 3.60%. China's central bank left the rate on medium-term lending facility unchanged at 2.0% after lowering the rate by 30 bps last month. China's GDP expanded 4.6% YoY in Q3 CY24 vs 4.7% YoY growth posted in Q2 CY24. The WTO revised its projection of world merchandise trade growth to 3% YoY in CY25, down from its earlier estimate of 3.3% YoY.
Domestically, India’s CPI-based inflation for September 2024 rose to 5.49% YoY, much higher than the 3.65% YoY print for August 2024 and above the market expectations of 5.1% YoY. CPI inflation came in higher as the favourable base effect wore-off and vegetable prices surged. Core CPI inflation marginally increased to 3.50% YoY in September 2024 as against 3.40% YoY in August 2024 as demand picks-up. The RBI’s MPC kept the benchmark repo rate unchanged at 6.5%, but shifted policy stance to ‘neutral’. For FY25, the GDP growth estimate was retained at 7.2% YoY and CPI inflation forecast remained unchanged at 4.5% YoY. India’s Wholesale Price Index (WPI) based inflation saw a slight increase in September 2024 to 1.84% YoY from 1.31% YoY in August 2024, driven by food prices inflation which increased by 11.53% YoY in September as compared to 3.11% YoY in August 2024. India’s merchandise trade deficit narrowed to a five-month low of USD 20.78 bn in September 2024, against USD 29.65 bn in August 2024. India's fiscal deficit for H1 FY25 stood at Rs 4.75 trillion, or 29.4% of annual estimates. The fiscal deficit contracted from 39.3% reported in the comparable year-ago period. India’s Net Direct Tax collections rose 18.35% YoY to touch Rs 11.25 trillion as of October 10, 2024. The collection included corporate tax of Rs 4.94 trillion and personal income tax of Rs 5.98 trillion. Refunds came in at Rs 2.31 trillion. India’s gross Goods and Services Tax GST collections in September 2024 hit Rs 1.73 trillion, a growth of 6.5% YoY from the Rs 1.63 trillion in September 2023. As per FTSE Russell, India's sovereign bonds will be included in FTSE Russell’s Emerging Markets Government Bond Index starting September 2025.
The liquidity conditions are likely to remain in surplus in the future as the RBI changed its stance. Going forward, the RBI is likely to remain nimble in liquidity management operations to ensure that overnight rates evolve in an orderly manner. The CPI inflation for September 2024 jumped to a 9-month high of 5.49% YoY, higher than market expectations of 5.1% YoY. With base effect wearing off, and food prices remaining elevated, the CPI inflation is likely to remain above the RBI’s target of 4% YoY in the near term. Additionally, the evolving geopolitical tensions in the Middle East may weigh on global crude oil prices. Going forward, the RBI’s decision will be influenced by the GDP growth data for Q2 FY25 along with the inflation trajectory as it tries to balance growth-inflation dynamics. The RBI’s monetary policy may also be guided by the monetary policies of developed countries such as US and EU. In the US, market will be looking forward to the commentary by Fed members for cues regarding Fed rate cuts along with the outcome of the US Presidential elections. In China, the central bank cut its benchmark loan prime rate as part of its stimulus efforts to boost the economy. The commodity prices rose sharply post the stimulus announcement in China, and have been cooling off post that in the second half of October. Domestically, with expected policy rate cut in India and developed countries, favourable demand-supply dynamics of Indian G-Secs, strong FPI flows into the bond market, and the recent rise in bond yields; tactical opportunities for duration strategy have emerged. Additionally, with the change in the RBI’s stance to neutral, liquidity conditions have eased. Thus, the shorter end of the yield curve may fall more than the longer end, likely leading to a steepening of the curve.
Fixed Income Mutual Fund investment strategy:- The Corporate Bond spreads at the shorter end may shrink, making the case for corporate bonds at the 2-4-years segment of the curve. Hence, investors can look at Corporate Bond Funds and Short duration funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors can look at Dynamic Bond Funds. For a horizon of 3 months and above, investors can consider Arbitrage Funds or Money Market Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors can also look at Multi-asset allocation funds for a horizon of 36 months and above. Investors should invest in line with their risk profile and product suitability.
Disclaimer: This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. HDFC Bank Limited ("HDFC Bank") does not warrant its completeness and accuracy. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument / units of Mutual Fund. Recipients of this information should rely on their own investigations and take their own professional advice. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may, from time to time, have investments / positions in Mutual Funds / schemes referred in the document. HDFC Bank may at any time solicit or provide commercial banking, credit or other services to the Mutual Funds / AMCs referred to herein.
Accordingly, information may be available to HDFC Bank, which is not reflected in this material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its publication. HDFC Bank neither guarantees nor makes any representations or warranties, express or implied, with respect to the fairness, correctness, accuracy, adequacy, reasonableness, viability for any particular purpose or completeness of the information and views. Further, HDFC Bank disclaims all liability in relation to use of data or information used in this report which is sourced from third parties.
HDFC Bank House, 1 st Floor, C.S. No. 6 \ 242, Senapati Bapat Marg, Lower Parel, Mumbai 400 013. Phone: (91)-22- 66527100, ext 7111, Fax: (91)-22-24900983 \ 24900858
HDFC Bank is a AMFI-registered Mutual Fund Distributor & a Corporate agent for Insurance products
Mutual fund investments are subject to market risks, read all scheme related documents carefully.