Indian equity markets flagship Index, Nifty-50 recovered by approximately 6% month on month in Nov-23. From 20,133 on 30 November 2023, Nifty-50 zoomed to 21,900+, an all-time high. From the end of November 2023 till mid-Jan 2024, Nifty Small cap 250 went up from 13,300 to 14,500. Similarly, the Nifty Midcap 150 index has gone from 13,250 to 14,550. Among the various sectors, automobiles, infrastructure, capital goods, industrials and real estate had the best performance in 2023. A strong domestic demand, capital expenditure focus of the government, and an increase in discretionary consumption contributed to an excellent performance. Globally, stock indices were positive since Nov-23 after the weakness seen in Oct-23. The S&P 500 Index increased by approximately 7% in the last six months. Since November 2023, it has risen by more than 650 points to reach 4780. Globally, NASDAQ, Dow Jones and Nikkei posted 10%+ growth in the last three months, while DAX and S&P 500 were close at heels.
Sustained earnings growth crucial for valuations to sustain: Nifty-50 EPS for FY24E/FY25E is down by 1-3% for FY24/25E post-Q2FY24 result. But still earnings growth expectations in FY24- 25E remain strong and the expectation is Nifty-50 EPS to increase by 13-14% YoY for FY24E and FY25E.
While most of India's domestic growth parameters like GST collection, PMI, e-way bill data, electricity demand, rail tracks etc. continue to be healthy, there can be some near-term hiccups. These include the possibility of volatile food inflation numbers, high global uncertainty and sustained higher interest rates globally. At a macro level, a) weakness in crude oil has led to positive sentiments for oil importers like India and b) weak US bond yield has led to positive FII flows to the tune of Rs94bn in Nov-23. The state election results in the 5 states have strengthened conviction for the continuation of the ruling party in the central government election on May 24.
With China, Russia and to an extent EU exercising their influence, geopolitics is witnessing a gradual shift towards a multipolar globe. The other BRICS nations and the Arab world may hold the key to the eventual outcome of this power shift, if at all. Given the unrest in eastern Europe and Gaza, global powerplay may be an influence on global indices.
India is not the only country going into elections. Democracies accounting for 60% of the global GDP will go to the polls, including the US and EU. Coronation of new political ideologies and renewed external affairs policies could mean the reshaping of international relationships. An impact on the global market cannot be ruled out. While geopolitics can be uncertain, one might be wise to keep an eye on the crucial US elections for now.
An uneasy calm is papering the cracks as serious geopolitical tensions continue to simmer in more than one location. Among other things, this also leads to logistical challenges, and as a result, on industrial policies.
Based on our combined investment learnings of more than 50 years, we have institutionalised a very strong investment Framework -SQL, which is core to our fund management framework and approach to our portfolios. We strongly believe that good quality (Q), low leverage companies (L) bought with a reasonably good margin of safety (S) makes the investment very attractive and rewarding for our investors.
Our Risk Management Framework & our Investment Framework are well thought-out and institutionalised to generate superior investment performance and create a smooth investment experience for all our investors. They are framed based on our own investment experience and also imbibed learnings from some of the great investment houses and investment managers globally, which will stand the test of time and keep our investors' interest at high standards. We have put risk limits based on fund mandates, market cap segments, sectors and stocks. How are we positioned in our funds with the macro situation being very dynamic and volatility increasing across asset classes, we continue with our strategy of running well-diversified portfolios. We are more focused on the stock selection process within the sector rather than trying to take large overweight/underweight positions among sectors. The focus continues to be on stock selection on a boom-up basis anchored on our SQL Investment Framework.
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