The month gone by – A snapshot

Global markets: Equity markets rallied in November as a clear mandate in favour of Republican party in the US elections, sparked hopes for implementation of a pro-growth agenda. Geopolitical risks receded somewhat, as Israel and Hezbollah agreed to a truce in the Middle-East. The US Fed reduced policy rate by an additional 25bps in November and is expected to reduce rates this month as well. However, as the US economy continues to do well, and pace of disinflation has slowed, the market expectations for additional rate cuts in 2025 have reduced. China’s economy has shown some signs of stabilisation post policy measures announced last month. Economic activity in Europe continues to remain subdued, which has led markets to expect continuation of monetary policy easing by the European Central Bank.

Global equity markets rallied by 4% last month, led by strong gains in the US markets. MSCI Emerging Markets index declined by 4% as a strong rally in the US Dollar led to outflows from most emerging markets. MSCI India outperformed emerging market peers and was largely stable last month. Crude oil prices remained stable given lower-than-expected demand and easing of tensions in the Middle-East.

Economy: GDP growth slows sharply

India’s September quarter GDP growth slowed to a seven-quarter low at 5.4%. The decline was primarily on account of sharp slowdown in gross value added in the industrial sector due to decline in corporate profitability during the quarter. Revival in government spending, particularly on capital expenditure, and private consumption was quite subdued. High frequency data points indicate slowdown in urban consumption, while rural consumption is showing signs of uptick. Services sector continues to show steady growth, while good monsoon rainfall has enabled a revival in agriculture sector.

Most analysts expect GDP growth to revive in second half of FY25 led by increase in government spending, growth in agriculture sector and services exports. Nevertheless, analysts have reduced full year GDP growth estimates for FY25 to 6.0%-6.5% range from 6.5%-7.0% range earlier.

Equity markets: Consolidation amidst volatility

Indian markets consolidated (Nifty Index was down 0.7%) in November amidst significant volatility. Mid and Small cap segment outperformed on the back of steady domestic flows. Information Technology (IT) and Banking sectors outperformed while Oil & Gas and Fast-Moving Consumer Goods (FMCG) sectors underperformed. Flows from Domestic Institutional Investors (DIIs) continued to remain strong with inflows of US$ 5.3 billion while Foreign Institutional Investors (FIIs) sold equities worth US$ 2.6 billion.

Outlook: India’s macro-economic situation is witnessing cyclical adjustments amidst stable external conditions, robust services sector trends and softening government expenditure. The outlook for both capital expenditure and consumption remains upbeat underpinned by improvement in rural economy and select high-frequency data. Festive season sales have been encouraging and strong sequential recovery is expected in the second half of the financial year. Major global central banks have initiated interest rate cuts which is expected to aid in demand revival for export-oriented sectors. We expect markets to consolidate in the near term and continue to maintain our positive stance on equities from a medium to long term perspective.

Fixed Income market: Growth slowdown may prompt monetary policy easing

Retail inflation in October rose to a 14-month high at 6.2% primarily due to increase in food prices. The underlying inflation, excluding food and fuel prices, has remained relatively subdued at 3.7%. Many analysts expect inflation outlook to improve given stability in global commodity prices, and anticipated improvement in supply of perishable food items on account of good monsoon rains.

While RBI has maintained a cautious monetary policy stance so far, the sharp decline in September quarter GDP growth, coupled with expected improvement in inflation outlook, may lead it to initiate monetary policy easing in the near term.

Outlook: The volatility in global markets due to uncertainty over anticipated pace of rate cuts by the US Fed, had led to volatility in domestic yields as well. However, continuation of fiscal consolidation by the central government, combined with the possibility of monetary easing measures by RBI, may lead to resumption of declining trend in domestic yields in the coming months.