July 2024 Indian Market Recap:
In July 2024, the Indian stock market displayed a mixed bag of results, with notable differences in performance across various indices and sectors. The BSE Sensex saw a 3.43% rise, reaching a peak of 81,908. This upward movement reflected strong market sentiment and heightened investor confidence, particularly in blue-chip stocks. The Sensex’s positive trajectory was driven by favorable economic data and robust corporate earnings, signaling a stable and optimistic market outlook.
The Nifty 50 index outshone the Sensex, climbing 3.92% to achieve a new high of 24,999. This performance was largely fueled by significant gains in key sectors like technology and consumer goods. The impressive growth of the Nifty 50 underscores investor confidence in large-cap stocks and highlights the resilience of major market sectors.
Foreign Portfolio Investments (FPIs) were net buyers in July 2024, with an inflow of ₹324 billion, up from ₹266 billion in June. This brought the year-to-date (YTD) inflows for CY24 to ₹356 billion, although this is lower compared to ₹1,230 billion in CYTD23. FPIs showed strong interest in sectors like IT, Metals, Auto, Healthcare, and Capital Goods, while sectors such as Financial Services, Power, Construction, and Consumer Durables witnessed outflows.
On the foreign exchange front, India’s forex reserves soared to an unprecedented level of $667.4 billion in July 2024, surpassing the previous record of $652 billion set in June 2024. This surge was driven by the fluctuations in non-US currencies, such as the euro, pound, and yen, within the reserves. Additionally, the Reserve Bank of India (RBI) implemented effective monetary policies and maintained vigilance, which strengthened its control over currency management amid global geopolitical tensions and price instability.
Commodity prices also continued their downward trend, influenced by policy tightening and expectations of a slowdown in global economic growth. The Indian Rupee (INR) remained largely stable throughout April, May, and June 2024. However, some depreciation was noted in July 2024 due to a stronger US dollar. The recent increase in the Bank of Japan’s benchmark interest rate by 15 basis points to 0.25% led to the unwinding of carry trades, further boosting the US dollar in early August 2024.
Sectoral performance
In July 2024, the Indian stock market saw varied performances across sectors. The Information Technology (IT), Pharmaceuticals (Pharma), Fast-Moving Consumer Goods (FMCG), and Insurance sectors emerged as top performers. These sectors benefited from a strong US dollar and favorable macroeconomic conditions, leading to impressive returns. The IT and Pharma sectors, in particular, saw significant gains due to robust demand and currency advantages.
Conversely, the Realty, Banking, and Automotive (Auto) sectors underperformed. The Realty sector faced challenges, resulting in subdued market activity, while the Banking sector struggled due to investor caution and sector-specific pressures.
In the following sections, we provide a comprehensive examination and detailed insights of some major sectors:
Auto:
The Indian automotive industry showed positive momentum in July 2024, with retail sales rising by 14.1% year-over-year (YoY) to reach 20.3 lakh units. This growth was largely driven by strong performances in the two-wheeler and passenger vehicle segments, both of which benefited from favorable economic conditions and market dynamics.
Two-Wheelers:
- ∙ Sales surged by 17.2% YoY, reaching approximately 14.4 lakh units. This growth was bolstered by a thriving rural economy, positive effects of a good monsoon, and the introduction of new products. Government support programs aimed at enhancing rural incomes also played a significant role, along with high inventory levels. The outlook for the two-wheeler segment remains positive, with expectations of further growth during the upcoming festive season, supported by new model launches and ongoing sales promotions.
Passenger Vehicles:
- ∙ The passenger vehicle segment saw a 10.4% YoY increase in sales, totaling 3.2 lakh units. This growth was supported by high discounting due to excess supply, the availability of new models, and continued sales promotions. The segment is expected to maintain its growth trajectory, driven by similar factors in the near term.
Commercial Vehicles:
- ∙ Sales in this segment recorded a modest 5.9% YoY increase. While there was growth in construction and mining activities, continuous rainfall, limited finance availability, and high vehicle prices tempered the overall growth in this category.
Three-Wheelers:
- ∙ The three-wheeler segment experienced a 17.2% YoY rise in sales, driven by higher sales of electric three-wheelers, first-time buyers entering the market, and attractive promotional offers. The introduction of new models and ongoing sales promotions are expected to sustain the growth in this segment.
Outlook:
- The overall outlook for the auto sector remains cautiously optimistic. While certain segments like two-wheelers and passenger vehicles are expected to continue their strong performance, challenges such as high vehicle prices and finance availability may limit growth in commercial vehicles. The festive season and ongoing sales promotions, coupled with new product launches, are likely to further support the sector’s performance in the coming months.
Chemical:
The chemical industry in July 2024 experienced a decline in prices across various segments, primarily due to a subdued business outlook in end-user industries that has dampened demand for chemical products. This decline in chemical prices occurred alongside a slight increase in crude oil prices, reflecting shifts in demand-supply dynamics and evolving market conditions in the broader industrial landscape.
Despite these challenges, India’s chemical sector remains resilient, driven by several positive factors. Global companies are increasingly looking to source chemicals from India as part of their strategy to de-risk supply chains, which is expected to support the sector in the long run. Additionally, the increasing share of specialty chemicals in the overall product mix and significant capital expenditures by chemical companies to capture future growth opportunities indicate a strong foundation for the sector.
In the medium term, the outlook for Indian chemical companies remains cautious. Recent quarters have shown mixed performance across the industry, with some segments facing challenges due to factors such as volatile crude oil prices, higher logistics costs, and supply chain disruptions. However, the worst of these challenges may be behind the sector, and gradual improvement is anticipated as the business outlook turns more positive.
The first half of FY25 is expected to see a gradual recovery in the sector, with more significant improvements projected in the second half. The normalization of crude oil prices, logistics costs, and supply chain issues will likely lead to better performance across the industry. Additionally, the recovery in demand from various end-user industries and higher utilization levels among chemical companies signal a positive long-term outlook for the sector.
However, the agrochemical industry may continue to face challenges due to high inventory levels and persistent pricing pressures globally. These challenges may be somewhat mitigated by favorable domestic monsoon conditions, which could support demand in the Indian market. Overall, while the chemical sector faces some headwinds, the long-term outlook remains positive as recovery trends take hold and external challenges gradually subside.
Banking:
The banking sector, particularly in the credit card segment, continued to show growth in June 2024, albeit with some mixed signals. The total value of credit card transactions rose by 15.7% year-over-year (YoY), reaching ₹1.6 lakh crore, continuing the positive trend from May. Private sector banks, in particular, experienced a 17.8% YoY increase in the value of these transactions, reflecting robust consumer spending and increased usage of credit cards.
However, despite the rise in total transaction value, the average credit card spend in June declined by 2.3% YoY to ₹15,534.6 and fell 4.4% month-over-month (MoM), largely due to a high base in May. This suggests a slight dip in per-card spending, possibly indicating more cautious consumer behavior or a shift in spending patterns.
The number of outstanding credit cards also grew, but only marginally by 0.5% MoM to 10.4 crore in June. This marks the slowest rate of growth in outstanding cards since October 2022, indicating a potential plateau in the expansion of the credit card market.
Looking ahead, while the banking sector continues to benefit from increased transaction volumes, the slowdown in the growth of outstanding credit cards and the decline in average spending per card suggest a cautious outlook. Banks may need to focus on strategies to stimulate consumer spending and maintain growth in the credit card segment.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- CPI inflation in July dropped to 3.54%, marking its lowest level since August 2019. Meanwhile, the Index of Industrial Production (IIP) grew by 4.2% in June.
- The HSBC India Manufacturing PMI slightly decreased to 58.1 in July 2024, down from 58.3 in June, and revised from the initial estimate of 58.5. This was also lower than the market forecast of 59. Despite the decline, the latest reading remained above the long-term average for the series and was still among the highest levels seen in recent years.4) The HSBC Flash India Composite PMI was revised down to 60.7 in July 2024 from an initial estimate of 61.4, following June’s 60.9. This marked the 36th consecutive month of growth in private sector activity.
- The HSBC India Services PMI was revised to 60.3 in July 2024, down from the initial estimate of 61.1 and slightly lower than June’s 60.5. Despite the revision, this marked the 36th straight month of growth in services, indicating continued strong business activity.
- The HSBC Flash India Composite PMI was revised down to 60.7 in July 2024 from an initial estimate of 61.4, following June’s 60.9. This marked the 36th consecutive month of growth in private sector activity.
- Deposit growth in India was reported at 10.6% in July 2024, down from 11.3% in the previous release.
- Infrastructure output in India increased by 4% year-on-year in June 2024, following a 6.3% rise in May. The slower growth was due to a contraction in the output of crude oil, which fell by 2.6% compared to a 1.1% decline in May, and petroleum refinery products, which decreased by 1.6% after a slight increase of 0.5% in the previous month.
RBI MPC Meet summary:
- Repo Rate Unchanged: The MPC kept the policy repo rate at 6.5% for the ninth consecutive meeting, focusing on inflation control while gradually withdrawing its accommodative stance.
- GDP Growth Confidence: Strong economic indicators have allowed the RBI to maintain its FY25 GDP growth projection at 7.2%, supported by robust investment demand, steady urban consumption, and rising rural consumption.
- ∙ Inflation Focus: The RBI remains committed to reducing inflation to a sustainable 4.0% target, despite challenges from ongoing food inflation.
- No Immediate Rate Cuts Expected: The repo rate, along with other key rates, is expected to remain unchanged until Q3 FY25.
- Inflation Projections Stable: CPI inflation for FY25 is projected at 4.5%, assuming a normal monsoon. Food inflation, particularly in vegetables, remains a significant contributor to headline inflation.
- Economic Activity Resilient: Manufacturing and services sectors continue to expand, with strong indicators like the Purchasing Managers’ Index (PMI) reflecting ongoing economic resilience.
- ∙System Liquidity: Liquidity in the system shifted from a deficit to a surplus in July 2024, with the RBI ensuring orderly money market interest rates through flexible liquidity management operations.
Fundamental outlook:
India’s economic landscape remains robust, with significant growth in various sectors. Electricity demand surged by 8% in July 2024 due to extreme heatwaves and increased industrial and residential usage. This upward trend is expected to persist with the arrival of summer. Additionally, UPI transactions reached an all-time high, reflecting strong progress toward a digitized economy and a rebound in the services sector.
Forex reserves climbed to a record $667.4 billion in July 2024, bolstered by effective monetary policies and currency stability. The Reserve Bank of India (RBI) kept its policy rate steady at 6.5% in the August 2024 MPC meeting, indicating confidence in the economy’s resilience. The RBI’s consistent approach to monetary policy, with inflation projected at 4.5% and GDP growth forecasted at 7.2%, supports this optimism.
Fiscal policy has also been supportive, with the subsidy budget reduced to 2.7% of GDP, reflecting improved economic conditions. Enhanced allocations for infrastructure, including railways, roads, and urban development, demonstrate the government’s commitment to growth. GST revenues remained strong at ₹1.82 lakh crore, highlighting a healthy fiscal position and effective tax collection.
Technical outlook.
Technically, the Indian stock market is showing a positive trend. Despite a minor decline in the Manufacturing PMI to 58.1 and the Services PMI to 60.3, both indicators remain above the threshold for expansion, suggesting continued growth. Major indices like the BSE Sensex and Nifty 50 have demonstrated resilience, supported by strong domestic fundamentals and favorable liquidity.
The record-high UPI transactions and robust forex reserves contribute to a stable market environment. However, investors should be cautious of potential short-term fluctuations driven by rising input costs and inflationary pressures. While the overall market trend is positive, staying informed about sector-specific developments and economic data will be essential for strategic investment decisions.
The primary support level for the Indian market stands at 24000, with a major resistance at 23500. Conversely, the primary resistance level is at 24550, with a major resistance at 24,800.
Outlook for the Global Market
US Market:
The U.S. market outlook is marked by ongoing challenges with inflation, which, while down from its 2022 peak, remains above the long-term target of 2%. In April, the Consumer Price Index rose by 3.4% year-over-year, reflecting persistent inflationary pressures. The path to reducing inflation has proven more difficult than anticipated, requiring continued patience and vigilance.
The central bank has maintained its target interest rate range at 5.25% to 5.5% since July 2023, the highest in over two decades. Concerns linger that these elevated rates and tight monetary policies could push the U.S. economy into a recession. Despite this, the labor market remains relatively stable even though there are signs of softening, with 175,000 jobs added in April, although this fell short of expectations.
However, the U.S. Treasury yield curve has been inverted since mid-2022, traditionally a strong indicator of an impending recession. Current expectations suggest a relatively lower chance of a recession within the next 12 months. While the cooling labor market, slowing economic growth, and softening consumer spending might raise concerns, these trends could also indicate that inflation may begin to stabilize. The next few months will be crucial in determining whether the central bank can achieve a “soft landing” for the economy, balancing inflation control without triggering a downturn.
Eurozone:
The Eurozone’s economic prospects for the remainder of the year are uncertain despite modest growth in the second quarter. The economy expanded by 0.3% from April to June, slightly exceeding expectations and matching the growth rate of the previous quarter. This growth was largely supported by stronger real incomes and increased public spending, indicating a domestic recovery. However, challenges in global trade and a series of negative economic surveys have cast a shadow over the outlook.
Among the major Eurozone economies, France and Spain exceeded forecasts, while Italy’s economy remained stable. On the other hand, Germany, the region’s largest economy, saw an unexpected contraction, raising concerns about a potential extended downturn. This is particularly worrying given Germany’s role as a key driver of the Eurozone’s economic performance.
Consumer confidence in the Eurozone remained low in July, reflecting broader economic concerns. Additionally, inflation in Germany edged up to 2.6% in July, with core inflation holding steady at 2.9% for the second month in a row. These factors suggest that while the Eurozone has managed to sustain some growth, ongoing challenges in trade, consumer sentiment, and inflation could create headwinds in the coming months.
Outlook for Gold
In recent months, gold prices have largely stabilized, following a period of positive momentum. A strong rally pushed gold above $2425 per ounce, influenced by factors like anticipated interest rate cuts, rising geopolitical tensions, central bank acquisitions, and increased market volatility.
The latest budget reduced customs duty on gold imports from 15% to 6%, which led to lower prices in the domestic market. As a result, gold prices decreased by 4% in INR terms but increased by 5% in USD terms over the last month. Looking forward, gold is expected to outperform other asset classes in 2024, especially as concerns about a potential slowdown in the US economy continue to make gold an attractive safe-haven asset.
What should Investors do?
Given the recent economic data and market trends, we remain confident in the long-term growth prospects of the Indian equity market. The ongoing capital expenditure (Capex) surge is strengthening banks and fostering credit growth, which is expected to further bolster the positive market outlook. However, with current market valuations, which has become slightly more expensive, the key driver of future returns will likely be an increase in corporate earnings and global macro.
In light of these factors, we recommend maintaining a diversified portfolio and continuing to invest in the market. Asset allocation and sector rotation will be crucial for generating outperformance in FY25. While current valuations may limit short-term gains, market dips provide a strategic opportunity to build positions in high-quality companies. Investors should focus on sectors poised for growth, supported by strong fundamentals and positive earnings prospects.
Given the mixed performance across sectors, with some like IT and consumer goods showing resilience in the current relatively volatile market condition, it’s important to stay selective and maintain a balanced approach. We advise using market corrections as opportunities to invest in fundamentally strong companies that are likely to benefit from the ongoing economic momentum and long-term growth trends in the Indian economy.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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