Market Outlook for the month: August 24

July 2024 Indian Market Recap:

In July 2024, the Indian inventory market displayed a blended bag of outcomes, with notable variations in efficiency throughout varied indices and sectors. The BSE Sensex noticed a 3.43% rise, reaching a peak of 81,908. This upward motion mirrored sturdy market sentiment and heightened investor confidence, significantly in blue-chip shares. The Sensex’s constructive trajectory was pushed by favorable financial information and strong company earnings, signaling a steady and optimistic market outlook.

The Nifty 50 index outshone the Sensex, climbing 3.92% to realize a brand new excessive of 24,999. This efficiency was largely fueled by vital positive aspects in key sectors like know-how and client items. The spectacular development of the Nifty 50 underscores investor confidence in large-cap shares and highlights the resilience of main market sectors.

International Portfolio Investments (FPIs) had been web consumers in July 2024, with an influx of ₹324 billion, up from ₹266 billion in June. This introduced the year-to-date (YTD) inflows for CY24 to ₹356 billion, though that is decrease in comparison with ₹1,230 billion in CYTD23. FPIs confirmed sturdy curiosity in sectors like IT, Metals, Auto, Healthcare, and Capital Items, whereas sectors comparable to Monetary Companies, Energy, Development, and Shopper Durables witnessed outflows.

On the overseas trade entrance, India’s foreign exchange reserves soared to an unprecedented degree of $667.4 billion in July 2024, surpassing the earlier document of $652 billion set in June 2024. This surge was pushed by the fluctuations in non-US currencies, such because the euro, pound, and yen, inside the reserves. Moreover, the Reserve Financial institution of India (RBI) carried out efficient financial insurance policies and maintained vigilance, which strengthened its management over foreign money administration amid international geopolitical tensions and value instability.

Commodity costs additionally continued their downward pattern, influenced by coverage tightening and expectations of a slowdown in international financial development. The Indian Rupee (INR) remained largely steady all through April, Might, and June 2024. Nonetheless, some depreciation was famous in July 2024 resulting from a stronger US greenback. The current improve within the Financial institution of Japan’s benchmark rate of interest by 15 foundation factors to 0.25% led to the unwinding of carry trades, additional boosting the US greenback in early August 2024.

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Sectoral efficiency

In July 2024, the Indian inventory market noticed diverse performances throughout sectors. The Data Expertise (IT), Prescription drugs (Pharma), Quick-Transferring Shopper Items (FMCG), and Insurance coverage sectors emerged as high performers. These sectors benefited from a powerful US greenback and favorable macroeconomic situations, resulting in spectacular returns. The IT and Pharma sectors, particularly, noticed vital positive aspects resulting from strong demand and foreign money benefits.

Conversely, the Realty, Banking, and Automotive (Auto) sectors underperformed. The Realty sector confronted challenges, leading to subdued market exercise, whereas the Banking sector struggled resulting from investor warning and sector-specific pressures.

Within the following sections, we offer a complete examination and detailed insights of some main sectors:

Auto:

The Indian automotive business confirmed constructive momentum in July 2024, with retail gross sales rising by 14.1% year-over-year (YoY) to succeed in 20.3 lakh items. This development was largely pushed by sturdy performances within the two-wheeler and passenger car segments, each of which benefited from favorable financial situations and market dynamics.

Two-Wheelers:

• ∙ Gross sales surged by 17.2% YoY, reaching roughly 14.4 lakh items. This development was bolstered by a thriving rural economic system, constructive results of a superb monsoon, and the introduction of latest merchandise. Authorities help packages aimed toward enhancing rural incomes additionally performed a major position, together with excessive stock ranges. The outlook for the two-wheeler section stays constructive, with expectations of additional development through the upcoming festive season, supported by new mannequin launches and ongoing gross sales promotions.

Passenger Automobiles:

• ∙ The passenger car section noticed a 10.4% YoY improve in gross sales, totaling 3.2 lakh items. This development was supported by excessive discounting resulting from extra provide, the supply of latest fashions, and continued gross sales promotions. The section is predicted to take care of its development trajectory, pushed by comparable components within the close to time period.

Industrial Automobiles:

• ∙ Gross sales on this section recorded a modest 5.9% YoY improve. Whereas there was development in building and mining actions, steady rainfall, restricted finance availability, and excessive car costs tempered the general development on this class.

Three-Wheelers:

• ∙ The three-wheeler section skilled a 17.2% YoY rise in gross sales, pushed by greater gross sales of electrical three-wheelers, first-time consumers coming into the market, and enticing promotional provides. The introduction of latest fashions and ongoing gross sales promotions are anticipated to maintain the expansion on this section.

Outlook:

•  The general outlook for the auto sector stays cautiously optimistic. Whereas sure segments like two-wheelers and passenger autos are anticipated to proceed their sturdy efficiency, challenges comparable to excessive car costs and finance availability could restrict development in industrial autos. The festive season and ongoing gross sales promotions, coupled with new product launches, are prone to additional help the sector’s efficiency within the coming months.

Chemical:

The chemical business in July 2024 skilled a decline in costs throughout varied segments, primarily resulting from a subdued enterprise outlook in end-user industries that has dampened demand for chemical merchandise. This decline in chemical costs occurred alongside a slight improve in crude oil costs, reflecting shifts in demand-supply dynamics and evolving market situations within the broader industrial panorama.

Regardless of these challenges, India’s chemical sector stays resilient, pushed by a number of constructive components. International firms are more and more seeking to supply chemical substances from India as a part of their technique to de-risk provide chains, which is predicted to help the sector in the long term. Moreover, the rising share of specialty chemical substances within the total product combine and vital capital expenditures by chemical firms to seize future development alternatives point out a powerful basis for the sector.

Within the medium time period, the outlook for Indian chemical firms stays cautious. Latest quarters have proven blended efficiency throughout the business, with some segments dealing with challenges resulting from components comparable to unstable crude oil costs, greater logistics prices, and provide chain disruptions. Nonetheless, the worst of those challenges could also be behind the sector, and gradual enchancment is anticipated because the enterprise outlook turns extra constructive.

The primary half of FY25 is predicted to see a gradual restoration within the sector, with extra vital enhancements projected within the second half. The normalization of crude oil costs, logistics prices, and provide chain points will seemingly result in higher efficiency throughout the business. Moreover, the restoration in demand from varied end-user industries and better utilization ranges amongst chemical firms sign a constructive long-term outlook for the sector.

Nonetheless, the agrochemical business could proceed to face challenges resulting from excessive stock ranges and protracted pricing pressures globally. These challenges could also be considerably mitigated by favorable home monsoon situations, which might help demand within the Indian market. General, whereas the chemical sector faces some headwinds, the long-term outlook stays constructive as restoration traits take maintain and exterior challenges steadily subside.

Banking: 

The banking sector, significantly within the bank card section, continued to point out development in June 2024, albeit with some blended indicators. The whole worth of bank card transactions rose by 15.7% year-over-year (YoY), reaching ₹1.6 lakh crore, persevering with the constructive pattern from Might. Non-public sector banks, particularly, skilled a 17.8% YoY improve within the worth of those transactions, reflecting strong client spending and elevated utilization of bank cards.

Nonetheless, regardless of the rise in whole transaction worth, the typical bank card spend in June declined by 2.3% YoY to ₹15,534.6 and fell 4.4% month-over-month (MoM), largely resulting from a excessive base in Might. This implies a slight dip in per-card spending, presumably indicating extra cautious client habits or a shift in spending patterns.

The variety of excellent bank cards additionally grew, however solely marginally by 0.5% MoM to 10.4 crore in June. This marks the slowest fee of development in excellent playing cards since October 2022, indicating a possible plateau within the enlargement of the bank card market.

Wanting forward, whereas the banking sector continues to learn from elevated transaction volumes, the slowdown within the development of excellent bank cards and the decline in common spending per card counsel a cautious outlook. Banks could must give attention to methods to stimulate client spending and preserve development within the bank card section.

Vital occasions & updates

A couple of vital occasions of the final month and upcoming ones are as under:

1. CPI inflation in July dropped to three.54%, marking its lowest degree since August 2019. In the meantime, the Index of Industrial Manufacturing (IIP) grew by 4.2% in June.
2. The HSBC India Manufacturing PMI barely decreased to 58.1 in July 2024, down from 58.3 in June, and revised from the preliminary estimate of 58.5. This was additionally decrease than the market forecast of 59. Regardless of the decline, the most recent studying remained above the long-term common for the sequence and was nonetheless among the many highest ranges seen in recent times.4) The HSBC Flash India Composite PMI was revised right down to 60.7 in July 2024 from an preliminary estimate of 61.4, following June’s 60.9. This marked the thirty sixth consecutive month of development in personal sector exercise.
3. The HSBC India Companies PMI was revised to 60.3 in July 2024, down from the preliminary estimate of 61.1 and barely decrease than June’s 60.5. Regardless of the revision, this marked the thirty sixth straight month of development in providers, indicating continued sturdy enterprise exercise.
4. The HSBC Flash India Composite PMI was revised right down to 60.7 in July 2024 from an preliminary estimate of 61.4, following June’s 60.9. This marked the thirty sixth consecutive month of development in personal sector exercise.
5. Deposit development in India was reported at 10.6% in July 2024, down from 11.3% within the earlier launch.
6. Infrastructure output in India elevated by 4% year-on-year in June 2024, following a 6.3% rise in Might. The slower development was resulting from a contraction within the output of crude oil, which fell by 2.6% in comparison with a 1.1% decline in Might, and petroleum refinery merchandise, which decreased by 1.6% after a slight improve of 0.5% within the earlier month.

RBI MPC Meet abstract:

• Repo Price Unchanged: The MPC stored the coverage repo fee at 6.5% for the ninth consecutive assembly, specializing in inflation management whereas steadily withdrawing its accommodative stance.
• GDP Development Confidence: Robust financial indicators have allowed the RBI to take care of its FY25 GDP development projection at 7.2%, supported by strong funding demand, regular city consumption, and rising rural consumption.
• ∙ Inflation Focus: The RBI stays dedicated to lowering inflation to a sustainable 4.0% goal, regardless of challenges from ongoing meals inflation.
• No Fast Price Cuts Anticipated: The repo fee, together with different key charges, is predicted to stay unchanged till Q3 FY25.
• Inflation Projections Steady: CPI inflation for FY25 is projected at 4.5%, assuming a standard monsoon. Meals inflation, significantly in greens, stays a major contributor to headline inflation.
• Financial Exercise Resilient: Manufacturing and providers sectors proceed to broaden, with sturdy indicators just like the Buying Managers’ Index (PMI) reflecting ongoing financial resilience.
• ∙System Liquidity: Liquidity within the system shifted from a deficit to a surplus in July 2024, with the RBI guaranteeing orderly cash market rates of interest via versatile liquidity administration operations.

Basic outlook: 

India’s financial panorama stays strong, with vital development in varied sectors. Electrical energy demand surged by 8% in July 2024 resulting from excessive heatwaves and elevated industrial and residential utilization. This upward pattern is predicted to stick with the arrival of summer season. Moreover, UPI transactions reached an all-time excessive, reflecting sturdy progress towards a digitized economic system and a rebound within the providers sector.

Foreign exchange reserves climbed to a document $667.4 billion in July 2024, bolstered by efficient financial insurance policies and foreign money stability. The Reserve Financial institution of India (RBI) stored its coverage fee regular at 6.5% within the August 2024 MPC assembly, indicating confidence within the economic system’s resilience. The RBI’s constant strategy to financial coverage, with inflation projected at 4.5% and GDP development forecasted at 7.2%, helps this optimism.

Fiscal coverage has additionally been supportive, with the subsidy funds diminished to 2.7% of GDP, reflecting improved financial situations. Enhanced allocations for infrastructure, together with railways, roads, and concrete growth, exhibit the federal government’s dedication to development. GST revenues remained sturdy at ₹1.82 lakh crore, highlighting a wholesome fiscal place and efficient tax assortment.

Technical outlook.

Technically, the Indian inventory market is exhibiting a constructive pattern. Regardless of a minor decline within the Manufacturing PMI to 58.1 and the Companies PMI to 60.3, each indicators stay above the edge for enlargement, suggesting continued development. Main indices just like the BSE Sensex and Nifty 50 have demonstrated resilience, supported by sturdy home fundamentals and favorable liquidity.

The record-high UPI transactions and strong foreign exchange reserves contribute to a steady market surroundings. Nonetheless, buyers must be cautious of potential short-term fluctuations pushed by rising enter prices and inflationary pressures. Whereas the general market pattern is constructive, staying knowledgeable about sector-specific developments and financial information will likely be important for strategic funding choices.

The first help degree for the Indian market stands at 24000, with a serious resistance at 23500. Conversely, the first resistance degree is at 24550, with a serious resistance at 24,800.

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Outlook for the International Market

US Market:

The U.S. market outlook is marked by ongoing challenges with inflation, which, whereas down from its 2022 peak, stays above the long-term goal of two%. In April, the Shopper Value Index rose by 3.4% year-over-year, reflecting persistent inflationary pressures. The trail to lowering inflation has confirmed tougher than anticipated, requiring continued persistence and vigilance.

The central financial institution has maintained its goal rate of interest vary at 5.25% to five.5% since July 2023, the best in over 20 years. Issues linger that these elevated charges and tight financial insurance policies might push the U.S. economic system right into a recession. Regardless of this, the labor market stays comparatively steady though there are indicators of softening, with 175,000 jobs added in April, though this fell wanting expectations.

Nonetheless, the U.S. Treasury yield curve has been inverted since mid-2022, historically a powerful indicator of an impending recession. Present expectations counsel a comparatively decrease probability of a recession inside the subsequent 12 months. Whereas the cooling labor market, slowing financial development, and softening client spending may elevate considerations, these traits might additionally point out that inflation could start to stabilize. The following few months will likely be essential in figuring out whether or not the central financial institution can obtain a “gentle touchdown” for the economic system, balancing inflation management with out triggering a downturn.

Eurozone:

The Eurozone’s financial prospects for the rest of the yr are unsure regardless of modest development within the second quarter. The economic system expanded by 0.3% from April to June, barely exceeding expectations and matching the expansion fee of the earlier quarter. This development was largely supported by stronger actual incomes and elevated public spending, indicating a home restoration. Nonetheless, challenges in international commerce and a sequence of unfavourable financial surveys have solid a shadow over the outlook.

Among the many main Eurozone economies, France and Spain exceeded forecasts, whereas Italy’s economic system remained steady. Then again, Germany, the area’s largest economic system, noticed an surprising contraction, elevating considerations a couple of potential prolonged downturn. That is significantly worrying given Germany’s position as a key driver of the Eurozone’s financial efficiency.

Shopper confidence within the Eurozone remained low in July, reflecting broader financial considerations. Moreover, inflation in Germany edged as much as 2.6% in July, with core inflation holding regular at 2.9% for the second month in a row. These components counsel that whereas the Eurozone has managed to maintain some development, ongoing challenges in commerce, client sentiment, and inflation might create headwinds within the coming months.

Outlook for Gold

In current months, gold costs have largely stabilized, following a interval of constructive momentum. A robust rally pushed gold above $2425 per ounce, influenced by components like anticipated rate of interest cuts, rising geopolitical tensions, central financial institution acquisitions, and elevated market volatility.

The newest funds diminished customs obligation on gold imports from 15% to six%, which led to decrease costs within the home market. Consequently, gold costs decreased by 4% in INR phrases however elevated by 5% in USD phrases over the past month. Wanting ahead, gold is predicted to outperform different asset courses in 2024, particularly as considerations a couple of potential slowdown within the US economic system proceed to make gold a horny safe-haven asset.

What ought to Buyers do?

Given the current financial information and market traits, we stay assured within the long-term development prospects of the Indian fairness market. The continued capital expenditure (Capex) surge is strengthening banks and fostering credit score development, which is predicted to additional bolster the constructive market outlook. Nonetheless, with present market valuations, which has develop into barely costlier, the important thing driver of future returns will seemingly be a rise in company earnings and international macro.

In mild of those components, we advocate sustaining a diversified portfolio and persevering with to speculate out there. Asset allocation and sector rotation will likely be essential for producing outperformance in FY25. Whereas present valuations could restrict short-term positive aspects, market dips present a strategic alternative to construct positions in high-quality firms. Buyers ought to give attention to sectors poised for development, supported by sturdy fundamentals and constructive earnings prospects.

Given the blended efficiency throughout sectors, with some like IT and client items exhibiting resilience within the present comparatively unstable market situation, it’s vital to remain selective and preserve a balanced strategy. We advise utilizing market corrections as alternatives to spend money on essentially sturdy firms which are prone to profit from the continued financial momentum and long-term development traits within the Indian economic system.

Disclaimer:

This text shouldn’t be construed as funding recommendation, please seek the advice of your Funding Adviser earlier than making any sound funding determination.

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