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    Market Review

    The month gone by – A snapshot

    Global equity markets began the year on a positive note and rallied in January. Market sentiment was aided by increasing optimism about global economic prospects. IMF has raised its estimate for global growth in 2024 and has stated that the global economy is ‘in the final descent towards a soft landing’.

     

    Amongst large economies, while growth in US and India is likely to be higher than what was expected earlier, growth in Eurozone is likely to disappoint. Central banks in US and Europe have acknowledged the declining inflation trajectory and have indicated that they may look to reduce policy rates later this year.

    MSCI World Index rallied by 1% in January, while MSCI Emerging Market index declined by 5%. MSCI India outperformed global markets with a 2% increase. Geopolitical tensions in the Middle East led to significant volatility in crude oil prices, which increased by 6% in January.

    Economy: Interim Budget 2024 emphasizes fiscal consolidation

    The interim budget was a well-balanced budget with focus on fiscal consolidation while allocating significant resources towards capital expenditure. No changes have been made to direct and indirect taxes. Notably, despite the forthcoming general elections, no major populist measures have been announced.

    Equity markets: Buoyancy continues

    While Nifty index was largely unchanged, the rally in mid and small cap indices continued driven by strong undertone in domestic-facing sectors and Public Sector Undertakings (PSUs). The Oil & Gas and Power sectors outperformed while Fast-Moving Consumer Goods (FMCG) sector underperformed. Foreign Institutional Investors (FIIs) sold equities worth USD 3.5bn in January.

    Outlook: Recent data points indicate that global macro-economic situation is stabilising amidst declining inflation trajectory. Commodity prices remain range bound despite continued geo-political concerns.

    From a local equity market standpoint, the interim budget provided a roadmap for stable policy regime, continued focus on infrastructure and responsible fiscal management. These factors augur well for equity markets and are likely to boost the on-going strong corporate profit cycle. We expect markets to remain buoyant in the near term and continue to maintain positive stance on equities from a medium to long term perspective.

    Fixed Income market: Bond yields likely to decline

    In the interim budget, the government surprised markets by overachieving its fiscal deficit target for FY24 as well as projecting a lower-than-expected fiscal deficit for FY25. Lower fiscal deficit coupled with reduction in issuance of government securities is likely to impact bond yields.

    Outlook: Global debt markets have started to price in the start of monetary policy easing by central banks. This has led to positive sentiment in debt markets globally.

    Domestic yields are likely to be impacted by declining inflation trajectory, lower issuances of Government securities combined with strong demand from foreign investors on account of inclusion of Indian government bonds in prominent global indices. Given this backdrop, we expect domestic yields to show a declining trajectory, going forward. However, geo-political and global market developments remain key monitorables.

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