Market Monitor: August 2024

The last two years have been brutal to the bears as Indian markets have soared to unimaginable highs and rewarded believers in India's story very well. Indian markets have been an envy for global investors as we continue to surge despite all odds and geopolitical uncertainties. Will this continue forever? Will markets continue to rally without correcting? Obviously, no. But as India marches on towards becoming a ~5tn economy, the stock market is likely to follow suit

In last month's edition of market monitor, we saw that with India's sustainable economic growth, currency stability and political continuity, combined with strong domestic flows, the stars are aligned for Indian equities over the next ~7-10 years. Some times, markets may run ahead of macros and fundamentals, and other times, they may lag behind macros and fundamentals. But broadly, the direction remains up. And for patient, long term investors, that's what matters

Indian Market Snapshot

We are seeing some initial signs of the broad based rally turning into a narrower move, as the Nifty 500/Nifty 50 ratio has started to cool off

This is also seen in index vs stock dichotomy, as over ~58% of Nifty Total Market stocks are down more than 10% from their 52 week high, even as the index is close to its all-time high

In the short run, markets have borrowed significantly from the future, as seen in the average 1y/10y return ratio at ~2.5x. This means some consolidation/short-term correction may be due, but its hard to predict a correction before it happens

Winds of change

On the sectoral front, we are seeing a clear rotation, as big winners over the last ~3-5 years like PSUs, autos and realty have seen a lull over the last ~1-3 months, while longer term laggards like IT, services, and financials are seeing an up-tick in the short term. This change has been seen post the election result in June 2024... also something that we discussed in the June edition of this newsletter

Mutual Funds

Domestic mutual funds are holding INR ~116k cr (~4.7% of AUM) in cash. This, coupled with the fact that nearly INR ~20k cr (and rising) is getting added to India's mutual fund AUM through the SIP route every month, our domestic institutions are more than equipped to step in and counter any unexpected volatility that may be triggered by global exigencies. This is also why we have seen much shallower drawdowns in Indian markets in the last ~3-4 years, as compared to the pre-COVID era

Below is a snapshot of how mutual fund categories are performing vs relevant benchmarks

Time for Gold to Glitter?

With a cooling US economy, and recession woes gripping policy makers, we are possibly staring at one of the most anticipated fed rate cuts in history. In the past, falling fed rate has been synonymous with a rally in Gold. Will history repeat this time around?

My favourite read for August: Optimism as a Default Setting

That's all for this time. Cheers, and happy investing!

Disclaimer:

I am not a SEBI RIA This post is purely educational and not to be construed as advice of any manner Please do your own due diligence before making investment related decisions based on the info seen in this post.