Investment Ideas Note – October 2024 by Wallet Wealth
Market Outlook
The Sensex rose by 2.11% by the end of the month and the BSE midcap index and BSE small cap index gained 0.62% and 2.46% respectively. The US Fed's rate cut will impact different markets differently. These 4 year-awaited rate cuts will cause US bond yields to fall, becoming more attractive for investments.
Let us see the market performance in 2024 September
| Index Performance September-2024 | |
| Date | Gain/Loss |
| BSE Sensex | 2.11% |
| BSE Midcap | 0.62% |
| BSE Small cap | 2.46% |
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This move is strategically aimed at boosting economic growth and boosting the slowly performing labor market. The chairmen of the Federal Reserve mentioned that the inflation is close to 2%. They are expected to cut the rates further in 2024 and again in 2025, 2026.
Similarly, this rate cut results in devaluation of dollars against the Indian rupee, ultimately leading to more foreign investments in the already overvalued Indian equity market.
| NIFTY 50 | 2.11% |
| Nifty midcap 150 | 2.05% |
| Nifty Bank | 2.99% |
The People's Bank of China (PBOC) has taken an extensive set of steps to boost the economy in the country, This caused Chinese stocks to rally as they surged 12.8%.
It also announced the rate cuts for home loan mortgages and reduced the down-payment ratio to boost the sinking real-estate sector. This development could lead to foreign investment getting lined up towards the blooming Chinese markets.
| MF/FII activity | FII | MF |
| |
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| ||||
| Equity | 49792.84 | 30383.06 |
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| Debt | 1277.68 | -30983.07 |
| |
| Total | 51070.5 | -600.11 |
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As we can see from the FII and mutual fund data, the FIIs bought Rs.49792.84 crores worth of equity in September compared to Rs13434.6 crores in August.
Similarly, the FIIs invested Rs.1277.68 crores in debt in September as compared to Rs. 14066.24 worth of debt in August.
The mutual funds have invested Rs.30383.06 crores in the equity market and sold Rs.30983.07 crores worth in the debt market by September 2024.
What to expect next?
The macroeconomic variables that contributed to September 2024's opportunities and challenges
Economic growth: The economic activity globally has slowed and disinflation is moving slowly. So, the makers of monetary policy have taken caution towards them.
The private consumption and gross fixed investment are robust and net exports remained optimistic in line with the Q1 FY 24-25 data. Though there was underperformance in the agricultural sector, it was well-balanced by a robust manufacturing sector. Bank loans to the agriculture and industry sectors have grown robustly by 18.1% and 10.2% respectively.
Inflation: Rural demand has increased predominantly, as household consumption is expected to grow faster in the second quarter. CPI ( consumer price index) inflation has come down recently, despite the highly volatile food prices.
Technology: The country on the whole has started digitizing payments. UPI has revolutionized this space. Also, technological advancements like spatial computing, industrial metaverse, cloud computing, and generative AI are expected to bloom, making India a country of digital excellence among its competitors.
Monetary policy: RBI didn't change any of the rates though the American counterpart brought down the rates by 50 basis points due to the progress of the Fed's dual mandate. This was the first time the US central bank brought down the rates and eased the monetary policy in the last 4 years. RBI governor also mentioned to not be carried away by dips in inflation and is not in any hurry to cut rates sooner.
While many factors determine an economy's efficacy, the Purchase manager's index is crucial. The purchasing manager's index is important to determining the health of the financial sectors in India. PMI comprises details on sub-orders, production, employment, supply deliveries, and inventories.
As compared to a better PMI of higher than 50%, India's current PMI stands at 57.5 in August 2024. But this informs a drop in value compared to July, which was 58.3.
The fall in value was attributed to the slowdown of new orders and outputs in the manufacturing sector.
As per the government's monthly GST collection report, the gross GST collection in August 2024 rose by 10% compared to August 2023 and the month-on-month collection was recorded at 6.5%. The sum of all the state's revenue generated through GSTs stood at 9%.
What is the concern for the Indian Equity Market
The ongoing Israel-Iran conflict poses significant challenges to India's economy, primarily due to its dependence on Middle Eastern oil and trade routes. With Iran being a key player in the global oil market, any escalation could disrupt oil supplies, leading to higher crude prices. This would increase India's import costs, pushing inflation higher, particularly in sectors like transportation and manufacturing, where fuel costs are critical. India has been relying on discounted Russian oil, but with those discounts shrinking, its reliance on Middle Eastern oil is increasing, making it vulnerable to further price spikes.
Sector rotation remains a key theme in the Indian market. Sectors such as real estate, small and mid-caps, and government-owned stocks are seeing momentum, while consumer discretionary, media, and autos are expected to perform well. Meanwhile, sectors like IT and industrials may experience a slower pace of growth due to cyclical and global factors.
Equity Market..!
The market cap over GDP ratio is currently at 108.58. This shows that the market is modestly overvalued. The zone indicates being a little cautious while investing for a short term.
The recent correction in the market was due to various factors that include the geo-political tensions, the market may correct further in the short term and provide an entry opportunity. Hence, the investors can choose to invest in 5-6 tranches as and when the market corrects. Hybrid funds like balanced advantage, multi asset funds are the good entry point at this juncture.
It is advisable not to invest lumpsum and invest into equity mutual funds over a 20–24-week period. As the valuations of small cap is on the higher side and hence one can wait and watch before investing in small cap. It's advisable to book profits in small cap if there are near term goals. We are of the opine that the large & mid cap funds would outperform the small cap this year.
Debt Market
The 10-year G-Sec is trading at 6.82% and the 5 Year G-Sec is trading at 6.78%. One can start looking at high quality corporate bonds and banking & PSU bonds with the maturity of 3 years could possibly generate a decent double-digit return. The best time to enter duration management funds would be faring better during this point in time. If one would like to look at parking money for a period of less than 1 year can look at investing in ultra-short/money market funds.
We strongly recommend the investors to avoid credit risk funds now.
S. Sridharan, Head- Financial Planner,
https://www.walletwealth.co.in/
If you need any advice on investments, do call us at 9940116967.
Team Wallet Wealth,
AMFI Registered Mutual Fund Distributor
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Chennai – 600 061
Ph: 044-48612114
https://www.walletwealth.co.in/
Disclaimer: The above information and views are personal and confidential. The information herein is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness, or correctness for any particular purpose. Opinions expressed are of our personal and subject to change without notice.
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