Market Monitor: September 2024

Welcome to Market Monitor's September edition!

Interest rate easing cycle begins

Heading into the last quarter of CY24, we see central banks world-over tilt towards an easing cycle. Prima-facie, this should bode well for emerging market equities.

Oil spike risk

As tensions in the middle-east escalate, with Iran and Israel directly engaging with one-another, fears of a spike in oil prices remain. This could be one of the key risks for Indian markets, as India imports most of its crude oil

Forex reserves

In a landmark moment, India's forex reserves crossed $700bn for the first time ever

China

Coming to the recent revival in China, the fierce rally in Chinese stocks was a function of low valuations, under-ownership among global investors and large monetary and fiscal measures announced by the government. However, for the rally to sustain, market participants will look to see if the stimulus measures make any real impact on economic revival and corporate profits

A lot of Indian investors experiencing FOMO on China after the last 1 month's performance. Important to zoom out and look at the bigger picture: China trades cheap and India trades expensive for a reason. This is clearly visible in the long term structural uptrend in Indian equities, and the sub-par returns by Chinese equities. Thus far, China remains a tactical allocation, where its important to enter and exit at the right time to avoid losing money

Indian Market Snapshot

Coming to India, in the short run, markets have borrowed significantly from the future, as seen in the average 1y/10y return ratio at ~2.8x. This means some consolidation/short-term correction may be due, but its hard to predict a correction before it happens

Indian Market Near-Term

Owing to geopolitical volatility, flows diverting towards China, election uncertainty in Haryana and JK, and market waiting to see what the RBI would do in their meet, Indian markets have seen a broad based correction in prices. The impact is particularly visible in the broader markets, but not so much at an index level. Case in point: as on 7th October, the Nifty 500 was down ~5.7%, but the median stock (% change from 52 week high) was ~ -16%. More than 35% of stocks in the Nifty 500 had already fallen over ~20% from their 52 week high!

However, India VIX, a measure of stock market volatility remained at low levels of ~14.1

Mutual Funds

Domestic mutual funds are holding INR ~1.35 lakh cr (~5.3% 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

Time for Gold to Glitter?

In the past, falling fed rate has been synonymous with a rally in Gold. Will history repeat this time around?

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.