The month gone by – A snapshot

Global markets: Global equity markets declined in April as US inflation rose to a six-month high in March, belying expectations of a soft landing of US economy. US Q1 2024 GDP growth slowed to 1.6%, however consumption growth continues to sustain. Fed Chairman Powell has cautioned that progress towards lower inflation ‘will take longer than previously expected’. Markets have lowered expectations of rate cuts by the Fed in 2024.

Eurozone, however, has seen a decline in inflation to 2.4%. European Central Bank expects inflation to decline to its target of 2% by 2025 and can consider reducing policy rates in the coming months. Sharp differential in interest rates with other major global economies has contributed to Japanese currency depreciating to a 34-year low against the US Dollar. Bank of Japan policymakers have indicated that they remain open to raising policy rates further.

IMF has raised global growth forecast for 2024 on account of higher growth expectations from US and India. MSCI World Index fell by 4% in April, while MSCI Emerging Market index increased by 1%. MSCI India outperformed global markets with a 2% return in April.

Economy: IMF raises India’s growth forecast

Moody’s has reaffirmed India’s sovereign credit rating at investment grade. In making this assessment, Moody’s has highlighted that the Indian economy is ‘benefiting from traction on infrastructure development, digitalization and the rehabilitation of the financial system, a stronger and more stable economy has emerged from the pandemic’. All three major global rating agencies continue to rate India in the ‘investment grade’.

High frequency data points such as GST collections, automobile sales, electricity consumption are indicative of robust expansion of economic activities. Preliminary composite PMI data for April rose to a 14-year high, with services sector showing strong momentum. Key international agencies such as International Monetary Fund (IMF) and Asian Development Bank (ADB) have raised growth forecasts for India. IMF has highlighted that growth outlook for India reflects ‘continuing strength in domestic demand‘. The outcome of ongoing Union general elections is a key monitorable for investors.

Equity markets: Momentum continues

Indian markets witnessed a strong rebound in April driven by continued momentum in domestic macro-economic situation. Prospects for corporate profitability and earnings growth estimates remain upbeat driven by domestic-facing sectors, supportive policy environment and stable input prices. While Nifty Index was up 1.2%, the Midcap (+5.8%) and Smallcap (+11.4%) indices outperformed significantly owing to higher domestic salience. Power, Telecom and Metal sectors outperformed while Information Technology and Pharmaceutical sectors underperformed. Foreign Institutional Investors (FIIs) ended the month with net selling of US$ 1.3bn while Domestic Institutional Investors (DIIs) remained net buyers with an inflow of US$ 5.3bn.

Outlook: India’s economic momentum remains steadfast, indicated by sustained growth in industrial production, discretionary consumption and services export. Rural growth is on the mend reflected by improving growth in entry-level vehicles. Despite the strong run-up, we remain positive on equity markets from a medium to long term perspective.

Fixed Income market: RBI maintains cautious stance

The retail inflation in March declined to a ten-month low at 4.9% y-y. Underlying core-inflation has declined to a record low at 3.3%. However, given elevated food prices, recent uptrend in global commodity prices, as well as uncertainty around monsoon rainfall, RBI’s monetary policy committee (MPC) maintained policy rates unchanged last month.

Outlook: Global interest rates rose sharply in April, as higher than expected inflation in the US led the markets to pare down monetary policy easing expectations. FIIs sold US$ 1.9bn of debt in April amidst heightened volatility in global debt markets. While domestic demand-supply dynamics favour a declining yield scenario, increase in global uncertainty may contribute to elevated volatility in the near term.