The month gone by – A snapshot

Global markets: Global equity markets rallied in March amidst expectations of soft landing of the global economy. US economy continues to perform well, while recent data points from China indicate that broader economy has begun to stabilise, notwithstanding continuing stress in real estate sector.

Switzerland National Bank has become the first developed market central bank to cut rates in the current monetary policy cycle. Bank of Japan, on the other hand, has raised policy rates after more than a decade. US inflation in February was marginally above expectations. Two consecutive months of slower than expected disinflation has prompted Fed Chair to caution that the central bank is not ‘in a hurry to cut’ rates. Analysts, however, expect monetary policy easing to commence from June this year.   

MSCI World Index rallied by 3% in March, while MSCI Emerging Market index increased by 2%. MSCI India delivered 1% return as markets saw profit booking amidst stretched valuations. Crude oil prices increased by 5% last month, as market reassessed demand forecasts amidst continuing strong growth from major economies.

Economy: Growth momentum to continue

High frequency data points continue to indicate strength in the domestic economy. March manufacturing PMI rose to a 16-year high. Core industries posted robust growth in February, with coal, natural gas and cement production posting double digit growth on an annual basis. GST collections rose by 12% to Rs 20.2 lakh crores in FY24. Global rating agency Fitch has raised India’s FY25 GDP growth forecast to 7.0%.

India’s forex reserves have increased to a record high at US$ 643bn and provide strong cushion amidst volatile external environment. The Union general elections, commencing this month, will be a key monitorable for investors.

Equity markets: Strong performance continues

Momentum in Indian markets continued in March. Nifty index was up 1.6% on the back of buoyant global markets and sustained inflows. Automobiles and Capital Goods sectors outperformed while Information Technology and Fast-Moving Consumer Goods (FMCG) sectors underperformed. Flows from foreign institutional investors (FIIs) remained positive, with net inflows of US$ 3.7bn last month.

Outlook: Global macro-economic situation continues to witness gradual improvement on the back of stable financial conditions, subsiding inflationary pressures and improvement in growth outlook. India’s economic growth trajectory remains strong driven by robust growth in domestic-facing sectors, marked improvement in external situation, healthy corporate balance sheets and thrust on infrastructure. The outlook for corporate profitability remains sanguine. Notwithstanding near-term volatility, we maintain a positive stance on equity markets.

Fixed Income market: RBI expected to maintain inflation focus

The retail inflation in February was broadly in-line with expectations at 5.1% y-y. Although core-inflation has declined significantly, food inflation continues to be high. Given uncertainty around monsoon rainfall, as well as recent uptrend in global commodity prices, we expect RBI’s monetary policy committee (MPC) to maintain policy rates unchanged in the upcoming meeting. Analysts expect the MPC to initiate rate cuts in second half of 2024.

Outlook: Global interest rates remained largely stable in March. Notwithstanding near-term uncertainty, analysts expect global central banks to initiate rate cuts later this year.

Domestic debt continued to find favour with foreign investors, leading to purchases of US$ 1.7bn in March. Cumulative FII inflows into domestic debt for H2 FY24 rose to a multi-year high at US$ 11.4bn. FII inflows are expected to continue in FY25 as well due to inclusion of Indian government securities in prominent global debt indices starting from June 2024. RBI has announced lower than expected issuance of Government Securities for H1 FY25. Domestic yields are likely to show a declining trend in FY25 amidst the favourable demand-supply scenario.