An economy has various phases, through various phases it goes. Phases are like slowdown, recovery, stable and then expansion, same the market works. Stable economy can define where there is no contraction or expansion of economy it is stable with real GDP growth of 6.8%, inflation at 3.65% as of August, which is below of RBI target of 4%. Deficit at 5.6% of GDP in FY23-24, projection for FY24-25 targeted at 4.9%, as per the economic survey real GDP growth for FY24-25 to be between 6.5% to 7%.
IMF has revised GDP growth of FY 24-25 from 6.5% t 6.8 supported by strong domestic demand and a rising working – age population. As per the IMF projections India will overtake Japan by 2025 to become fourth largest economy in the world and will overtake Germany to become third largest economy in the world by 2027.
Corporate earnings are strong and we have seen that major reason for stock market performance was strong earnings in last three years. Also, domestic flows which is around INR 9000 Crores, more than 10x flows from FII’s during the same period. Large retail participation through SIP flows which accounts for INR 23547 crore in August 24 supported to domestic equities.
After the Fed rate cut by 50 basis point, now S&P retains India’s growth forecast by 6.8% for FY25 and expects rate cut by Oct 24.
India’s forex reserves touched USD 680 billion at record high.
Retail inflation in India was 3.65% in August 2024, lowest second time in last five years. In rural areas and urban areas inflation rate was 4.16% and 3.14% respectively.
Food inflation in India increased by 5.66% in August, increased cost of food which holds 50% of consumer basket.
In spite of rise of food inflation stays below the RBI’s target of 4% in five years.
Cooling Inflation has shown some relief for major economies high from ending of Q1 FY 23-24.
Prices of food in India inflated by 5.66% year-on-year in August 2024, compared to 5.42% in July. Pulses and products (13.6%) and vegetables (10.71%) registered highest level of increase. Whereas Tomatoes fell the most (-47.91%). source: Ministry of Statistics and Programme Implementation (MOSPI)
European markets felt some relief as Inflation dropped to 2.2% in August from 2.6% in July.
Early August Japanese market corrected due to interest rate hike but recovered in the midst of favorable US policy rate cut.
China is still facing and struggling real estate sector impacting broader market sentiment. Weak corporate earnings stimulating pessimism, growing concerns over economic downturn.
Strong growth of 7.4% from Private Consumption expenditure, indicated strong consumer spending. It pins something on increasing disposable income, festive spending and improved consumer confidence across various segments. Govt. spending majorly on infrastructure, public services, and welfare programs.
Gross fixed capital formation was estimated to be over INR 91 trillion in FY 24-25 vs 82.87 FY 23-24. Government is increasing investments in infrastructure and manufacturing with the aim of to stimulate Make in India and Urban Infrastructure.
India’s 10-year G-sec is at 6.9% and policy rate at 6.5%.
US GDP growing at 3.1% YOY, inflation rate at 2.9%, 10-year bond at 3.7% and after the rate cut by Fed in 18 September policy rate at 5%.
Due to economic indicator, interest rate changes and geo political events made the global market volatile in late August and early September 2024.
S&P Global flash US composite PMI came at 54.4 in September, down from August 54.6.
As per the Chris Williamson, chief economist at S&P Global Market Intelligence, “US economy is pacing for healthy growth in third quarter, which will come close at the end of September.
Federal Reserve Chair Jerome Powell said, “US economy is in good shape. It is growing at a solid pace. Inflation is coming down. The labor market is in strong pace. We want to keep it there”.
Fed has indicated that interest rate cuts may reach the terminal rate 3%-3.25% by the end of 2025.
HSBC India Manufacturing PMI data at 56.7 in September 24 vs 57.5 in August 24.
Inda Services PMI at 58.9 in September 24 vs 60.9 in August 24
Due to softest expansion in factory activity since January 24, in the midst of softer growth of output and new orders. Least foreign sales this year. Despite of less job creation from earlier month, there is an increment in job rate.
Exports has grown by 8.7% YOY vs imports growth rate at 4.4%.
FIIs has net buyers from last three consecutive months of USD 1.4 billion vs DIIs are consistently with strong net inflow of USD 5.8 billion in August 24.
Monthly SIP participation has crossed record high of INR 23547 crores. Total Asset Under Management of Mutual Fund touched INR 66.7 lakh crores from 10.1 lakh crores last 10 years.
Nifty 50 1-year average PE trading at 22.60, current PE is at 24.38. 1 year high and low PE at 24.38 vs 20.40 respectively as on September 24. 1-year average Nifty forward PE is trading at 21.4x.
Nifty EPS trading at 1073, Nifty EPS is expected to grow by 14.9% with estimated EPS target of 1214 by FY25 and 1395 by FY26.
Nifty returns in last five years were 17% of CAGR backed by stunning corporate earnings of 18%, outcome of that Nifty touched INR 7.9 trillion from INR 3.5 trillion in FY19.
Corporate earnings are in line, markets look positive with the tune of strong economic growth, capital expenditure and expected rate cut.
Nifty large cap is trading at fair value, mid and small cap are trading at higher valuations but growth of corporate earnings seems to be strong in long term perspective.