September 2024 Market Performance Summary:
In September 2024, the Nifty-50 index experienced significant volatility after a brief consolidation around the 25,000 level. Following this, the index rallied to a record high of 26,278, driven by positive sentiment. However, it later dropped sharply to around 24,700 due to geopolitical concerns impacting oil prices and profit-booking activities. Despite this volatility, the Nifty-50 managed to close the month with a solid gain of 2.2%, marking a positive performance overall.
Fund flows were also notable, with both Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) being net buyers. FIIs purchased equities worth ₹12,600 crore, while DIIs were even more aggressive, buying ₹30,800 crore worth of equities. However, as October began, FIIs started offloading equities, selling approximately ₹54,000 crore by October 10th. This triggered a market correction early in the month. The correction was cushioned by robust buying from DIIs, who matched the FIIs’ exits by purchasing ₹54,000 crore worth of equities, providing much-needed market stability.
On the macroeconomic front, India’s foreign exchange reserves reached a historic high of $692 billion in September, surpassing the previous month’s record. This milestone highlights the Reserve Bank of India’s proactive approach to managing the country’s currency amidst ongoing global economic and geopolitical uncertainties.
Sectoral performance
In September 2024, sectoral performance varied across industries. The Energy sector led the gains with an impressive 8.5% growth, fueled by rising global oil prices, robust domestic demand, and favorable government policies. The Manufacturing sector followed with a 6.2% increase, supported by strong industrial production, export growth, and improved supply chain efficiencies. Similarly, the Infrastructure sector saw a 7.1% rise, driven by government spending on infrastructure projects, increased private sector investments, and urban development initiatives.
On the downside, the IT Services sector declined by 2.0%, primarily due to global economic uncertainties, reduced client spending on IT, and currency fluctuations. The Finance sector also struggled, falling by 1.5% as tighter monetary policies, increasing non-performing assets (NPAs), and regulatory challenges weighed on performance. Lastly, the Automobiles & Ancillaries sector slipped by 0.5%, impacted by supply chain disruptions, rising input costs, and competitive pressures.
In the following sections, we provide a more comprehensive examination and detailed insights of some major sectors:
Auto:
The auto sector has encountered several challenges over recent quarters, such as rising inventory levels, supply chain disruptions, and fluctuating market demand. In Q2FY25, overall sales were impacted by lower consumer demand and the Shraddh period, resulting in a year-on-year decline across various categories. Despite the festive seasons of Ganesh Chaturthi and Onam, auto dealers reported stagnant performance, with lackluster market sentiment indicating the potential for flat or negative growth. Discounts and promotional offers aimed at boosting demand have yet to result in any significant improvement in sales.
In terms of retail sales volume for Q2FY25, performance varied by category. Two-wheelers saw a 4.7% year-on-year increase, while three-wheelers grew by 4.9%, largely driven by strong rural demand. However, passenger vehicle (PV) sales declined by 5.1% year-on-year, attributed to weaker consumer demand and high inventory levels. Commercial vehicles (CV) also saw a 3.8% decline, due to reduced government spending and seasonal challenges.
Looking ahead, the short-term outlook for auto retail remains cautiously optimistic, with expectations of a sales boost during the Navratri and Diwali festivals. Strong rural demand and new vehicle launches are anticipated to drive growth in two-wheeler, passenger vehicle, and commercial vehicle sales, though elevated inventory levels may limit any significant sales uplift.
Finance:
The finance sector experienced a moderation in system non-food credit growth, which slowed to 13.6% year-on-year in August 2024, down from 16% in FY24. This was driven by a deceleration across segments, particularly in the unsecured loan portfolio. Preliminary data from banks also indicate a slowdown in credit growth on a quarter-on-quarter basis for Q2FY25. Growth in retail loans softened to 13.9% year-on-year, primarily influenced by credit cards, vehicle loans, and education loans, while working capital loans for highly rated corporates and gold loans provided some support. Bank credit is expected to grow in the 13-14% range for FY25, though the impact of increased risk weights on personal loans, credit cards, and NBFC lending will need to be monitored.
On the deposit front, sentiment improved, with growth reaching 11.5% as of September 20, 2024. Deposit growth is expected to remain in the 10-12% range. However, banks faced pressure on net interest margins (NIMs) during Q2FY25 due to rising deposit rates. Asset quality is projected to remain stable, with credit costs normalizing going forward.
Term deposit rates for durations over one year remained steady during the quarter, while MCLR rates edged up slightly, which should help ease margin pressures. Strong deposit growth also led to a slight quarter-on-quarter decline in the credit-deposit (CD) ratio, potentially impacting margins. Additionally, banks are expected to see an improvement in treasury income, supported by a 15 basis point drop in the 10-year G-Sec yield during the quarter, which should result in an increase in treasury profits.
Asset quality is anticipated to remain stable, with higher recoveries and upgrades, driven by improved collection efficiencies, offsetting any seasonal NPA formation. Bounce rates indicate stable asset quality, and the absence of stress in economic activity should help maintain steady credit costs. However, the impact of farm loan waivers on credit culture and NPA formation will need to be closely watched, as will future guidance on credit costs.
Consumer durables:
The consumer durables sector faced weak demand in Q2FY25, largely due to a subdued start to the festival season, particularly during Onam, and the impact of heavy rains. However, the wires and cables (W&C) segment continued to perform well, supported by strong demand from infrastructure projects. The W&C segment has maintained steady volume growth, driven by infrastructure expansion and a quarter-on-quarter decline in copper and aluminum prices (5.2% and 5.3% respectively in Q2FY25), which helped sustain momentum. While domestic wire demand remained soft, rising raw material prices in September 2024 prompted channel stocking, leading to a volume pickup in the sector.
In the fast-moving electrical goods (FMEG) segment, growth was moderate. The fan segment experienced weak demand due to the rainy season, although companies implemented price hikes. Small appliances did not see similar price increases. However, demand is expected to rise in the upcoming quarters, supported by the festive season, with overall growth in the FMEG segment estimated at around 7% year-on-year for Q2FY25.
The room air conditioner (RAC) segment had a weak quarter, though the sector is expected to report 13.5% year-on-year growth, partly due to restocking by distribution channels after a sharp reduction in Q1FY25. Demand for air conditioners remains steady, and sales growth in this segment is anticipated to improve as the season progresses, with better margins expected in the coming quarters.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- In October 2024, the Reserve Bank of India (RBI) maintained its benchmark policy repo rate at 6.5% for the tenth consecutive meeting, in line with market expectations. However, the RBI shifted its policy stance to neutral, signaling potential rate cuts as early indications of a slowdown in economic growth emerge.
- The HSBC India Manufacturing PMI declined to 56.5 in September 2024, slightly below the flash estimate of 56.7 and down from 57.5 in August.
- The HSBC India Services PMI was revised down to 57.7 in September 2024, compared to the preliminary estimate of 58.9, and a reading of 60.9 in August, which had marked the fastest growth in five months.
- Deposit growth in India was reported at 11.5% as of September 20, 2024, up from 11.1% in the previous release.
- The HSBC India Composite PMI stood at 58.3 in September 2024, falling short of the flash estimate of 59.3 and August’s reading of 60.7. This marked the 38th consecutive month of growth in private sector activity.
Fundamental outlook:
The outlook for the Indian market in FY25E is predominantly optimistic, bolstered by several critical macroeconomic indicators. GDP growth is projected at 7.2%, driven by robust private consumption and investment, with Q1FY25 showcasing a growth rate of 6.7%. The agriculture sector is expected to thrive due to above-normal rainfall and healthy reservoir levels, while both manufacturing and services sectors exhibit stability. Notably, headline inflation has significantly declined, recording 3.6% in July and 3.7% in August 2024, down from 5.1% in June. CPI inflation is anticipated to stabilize around 4.5% for FY25E, with food inflation likely easing by Q4FY25E as favorable crop conditions emerge.
India’s foreign exchange reserves have surged to an all-time high of $704.4 billion, positioning the country among the top four economies globally. This increase reflects strong economic fundamentals and ongoing resilience in domestic activities.
Despite these promising trends, certain risks persist. Inflation volatility, influenced by geopolitical tensions and unexpected weather events, could challenge the current positive trajectory. While external demand is expected to strengthen with rising global trade volumes, it remains susceptible to adverse international developments.
Technical outlook.
The technical outlook for the Indian market appears bullish for the long term but cautious for the near term, supported by solid economic fundamentals. Key metrics, such as the substantial increase in UPI transactions, which reached record highs in September 2024, signal strong consumer engagement and digital adoption, likely enhancing overall market sentiment.
In addition, patterns in power and fuel consumption serve as crucial indicators. Power consumption remained flat at 0.4% in September due to favorable weather conditions, but robust growth is anticipated as economic activities increase with the onset of winter. Notably, petrol consumption saw a 9% rise in August, reflecting a positive shift in consumer behavior, although diesel consumption decreased by 3%, indicating evolving dynamics in fuel usage.
Monitoring key support levels and breakout points is essential, as the market’s technical structure is poised for growth. The Reserve Bank of India (RBI) is expected to maintain its nimble approach to liquidity management, which should further stabilize the market environment. Overall, the combination of favorable economic indicators, high-frequency data, and a bullish technical outlook positions the Indian market for continued positive momentum, with the potential for rate cuts in early 2025 further enhancing market conditions.
The primary support level for the market is at 24,500, with significant resistance at 25,250 and a major resistance point at 25,500.
Outlook for the Global Market
US Market:
The latest U.S. jobs report reveals a surprisingly robust labor market, prompting a reassessment of economic forecasts. Employment growth has surged nearly three times faster than the labor force expansion, resulting in a drop in the unemployment rate from 4.2% in August to 4.1% in September, marking the second consecutive month of decline.
This unexpected strength has driven bond yields higher and modestly lifted equity prices while strengthening the U.S. dollar against major currencies. Consequently, futures markets now reflect a 94% probability of a 25-basis-point cut in the Federal Reserve’s upcoming meeting in November, up from 68% prior to the report, as investors anticipate a more cautious approach from the Fed, especially given signs of accelerating wage growth.
This evolving landscape indicates that the U.S. economy may be on track for a “soft landing” that is firmer than previously expected, underscoring the importance of closely monitoring economic indicators and monetary policy developments in the months ahead.
Eurozone:
Inflation in the Eurozone has fallen below the European Central Bank’s (ECB) target of 2%, with consumer prices rising just 1.8% year-over-year in September 2024, the lowest rate seen in three years. Although the ECB has started to gradually lower interest rates in response to economic challenges, there is still caution due to ongoing inflationary pressures.
When excluding volatile food and energy prices, core inflation was recorded at 2.7% in August, the lowest since February 2022. Energy prices declined by 6%, while food prices saw a modest increase of 2.7%. In contrast, service prices continued to rise significantly, maintaining a 4% increase since November 2023. This persistent service inflation complicates the ECB’s ability to implement more aggressive interest rate cuts. However, given the eurozone’s economic weaknesses, there are strong calls for further monetary easing. Consequently, market expectations lean toward a 25-basis-point reduction in the ECB’s benchmark rates at its next meeting. This sentiment has already driven down bond yields across major eurozone countries. Following the inflation report, the euro weakened substantially, and equity markets reflected concerns about the overall economic outlook, leading to declines in stock prices.
Outlook for Gold:
In the past one to three months, prices have experienced significant volatility, with a notable recovery observed in September 2024, particularly following the 50-basis-point rate cut by the U.S. Federal Reserve in mid-September. This rally propelled gold prices above $2,672 per ounce on September 26, marking the highest level in recent months. The surge in gold prices was fuelled by the Fed’s rate cut, expectations of two additional 25-basis-point cuts later in 2024, escalating geopolitical tensions, increased central bank purchases, and heightened volatility in equity markets. Additionally, the recent budget announcement reducing the customs duty on gold imports from 15% to 6% has led to price reductions in the domestic market. Consequently, gold prices fell by 4% in Indian rupees in July 2024 but rebounded by 4% to 5% in August and September. Looking ahead, we anticipate that gold will maintain its appeal over other asset classes throughout 2024, serving as a safe-haven investment amid concerns of a slowdown in the U.S. market. Fundamentally, gold prices are inversely correlated with bond yields; thus, any decline in yields will likely continue to positively influence gold prices.
What should Investors do?
In light of the recent surge in the Indian markets, it seems that much of the positive sentiment regarding the economy has already been accounted for in current valuations. Consequently, we expect a phase of near-term consolidation, marked by a tightening market breadth and an emphasis on style and sector rotation. This backdrop may necessitate a more discerning investment approach.
Although Midcaps and Smallcaps have shown impressive performance in recent months, their valuations have become comparatively less attractive than those of Largecaps, indicating a diminished margin of safety. Thus, we recommend exercising caution when considering investments in these segments at present levels.
Given these circumstances, we advise focusing on Largecap sectors that offer greater stability. Specifically, Largecap private banks, telecommunications, consumer goods, information technology, and pharmaceuticals are positioned as promising opportunities in the near term. Furthermore, with a potential recovery in China, certain cyclical sectors may also garner renewed attention within the domestic
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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