India Shining Bright in an Uncertain World
Today we are taking a quick glance through Tata Mutual Fund ’s Round up 2023 & Outlook 2024 titled India Shining Bright in an Uncertain World.?
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#2024outlook
Reminder: If you haven’t yet, do check out Kuvera.in ’s insights from investors -? India Rising | 2023 Review and 2024 Outlook.
Nifty 50 Journey in 2023 ??
In 2023, Indian equities surged 20%, rebounding from a slow start with Adani & US banking issues. Q2 saw a strong recovery driven by domestic factors, global cues, FII inflows, & lower crude prices. The year ended well with a dovish Fed policy & state election results.
In 2023, developed market equities outperformed emerging markets. Geopolitical risks included the Russia-Ukraine war & Israel-Hamas conflict. Global equities were influenced by monetary policies, bank collapses, AI optimism, bond yields, and China's slowdown.
All major sectors in India gained in 2023. Realty (82%) and Auto (47%) made the highest gains while Bank (12%) was the lowest performer
Mid-cap and small cap indices significantly outperformed the large cap index in 2023.?
EQUITY FLOWS – FIIs & DIIs
????FY23: FIIs net sellers, ~USD 10bn outflows. DIIs robust at ~USD 33bn.
????FY24TD: FIIs at ~USD 14.7bn, DIIs at ~USD 10.6bn.
Performance of India’s leading economic indicators ??
???? 4QFY23 real GDP growth improved to 6.1% (3QFY23: 4.5%)
???? India’s economic growth accelerated in Q1FY24 to 7.8%
???? India’s economic growth-maintained momentum in Q2FY24 to 7.6%
???? India’s retail inflation ranged from 4.31% to 7.44% YoY for the year.?
???? The inflation breached the RBI’s tolerance band for 4 out of 11 months.?
???? India’s Wholesale price-based inflation ranged between -4.12% to 4.73% YoY.
???? Manufacturing PMI remained in expansion (55.3-58.7).
???? Services PMI stayed in expansion (56.9-62.3).
???? Industrial activity had YoY growth each month in 2023.
???? After 5 rate hikes of a total of 225 bps in 2022, there was 1 rate hike of 25 bps in 2023.
???? RBI maintained accommodative stance.
???? Real rates positive for 8 of 11 months.
???? RBI raised FY24 GDP forecast to 7.0%.
???? RBI kept FY24 CPI projections at 5.4%.
Rupee depreciated to its lowest level in 2023 amidst a narrowing yield differential with the US, slowing FPI flows and a rise in oil prices.?
???? Foreign exchange reserves rose to USD 620 bn in Dec 23 from USD 562 bn in Dec 22
???? @TataMutualFund expects RBI’s FX intervention to continue to reduce volatility in rupee going ahead
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Oil prices were very volatile for the year and traded between 71.5 – 97.8 USD/barrel before ending the year at 77.6 USD/barrel.
Global central banks continued with policy tightening in 2023.
The government reiterated its stated objective of bringing down the Fiscal to 4.5% of GDP by FY26.?
???? Forward PE: 20x, above historical average.
???? Expected earnings FY24: 15.0%, FY25: 15.8%.
???? Nifty 50 outperformed MSCI EM index (12 months).
???? Nifty 50 trades at 77% premium to MSCI EM, historically ~48%.
Mid Cap Valuation
What Lies Ahead?
India’s valuation premium could sustain
India has outperformed given the expectation of strong earnings momentum this quarter. Corporate earnings downgrade risk has reduced.
The risk of higher crude prices has decreased, which could maintain India's valuation premium.
The longer term drivers of earnings in India ??
India’s dependency ratio (children & elderly population / total population) has consistently fallen from 73% in 1990 to 47% in 2022. It is expected to further fall to 30% in 2050.?
Production-Linked Incentive (PLI) should attract a total capex of ~Rs.4.4tn over next 4-5 years and could fast-track the capex plans of the private sector by at least two years.?
Investment cycle expected to strengthen. ??
Tata Mutual Fund advises a balanced portfolio strategy to capitalize on the various pockets of strong earnings recovery and outlook.?
India to benefit from the global slowdown because;
???? Higher economic growth compared to EMs/China
???? Lower commodity prices that safeguard Indian corporate margins
Major Economic Risks in 2024 (global)
? War in Ukraine and Middle east?
? Elections around the world add to geopolitical uncertainty?
? Potential for a hard landing in the US, stagnation in the EU, and slowing growth in China?
Major Economic Risks in 2024 (domestic)
? Energy Prices?
? General elections
? The global risks of a sharp slowdown (as a result of high interest rates) which coupled with any financial accidents can cause a contagion and will be a risk-off event for the EMs
That was a quick glance at Tata Mutual Fund ’s Equity outlook.
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