Markets end FY24 on a strong note!

Hello??♂?!

We are here with the 26th edition of ‘Sharpe Insights’. As always we are going to keep this around 4-5 minutes! Don’t forget to answer the question at the end to win a 1-month subscription to sharpely Pro. Let’s dive in!

This week was the last trading week of FY24. We had only three trading days because we had two public holidays in the week. The market continued to consolidate and ended FY 24 on a positive note.

Global Macro Factors??

Again, global macro factors were mostly negative this week. Crude oil continued its upward journey and is now trading above the $87 mark. Gold also showed strength and moved up by a solid 1.95% during the week. It is now trading above the $2250 mark. After the breakout, gold has continued the strong show.

The dollar index climbed up a bit by 0.24% and is now at 104.49. But the rupee gained some strength as USD INR went down by 0.32% during the week. The US 10-year Treasury Yield was flat. It is now at 4.206% vs 4.202% last week. The number went down below the 4% mark for a brief time but now continues to stay above the 4% mark.

The S&P 500 continued to climb up and gained 0.69% this week. It is now trading at an all-time high level of 5254.35.

On the domestic front, India's foreign exchange reserves rose for a fifth straight week and stood at $642.63 billion as of March 22. During the week, the reserves rose by $140 Million.

Market Performance??

This week we saw some solid recovery in the Indian market. As we discussed in our last two editions, the market showed some strength and we saw positive momentum across the market. Even though this week had only three trading days, all broader indices closed with a gain of more than 1%.

Nifty 50 ended the week with an up move of 1.04%. Nifty 100 and Nifty 500 also closed in the green as they moved up by 1.27% and 1.30% respectively. While the Nifty smallcap index gained 1.42% this week, Nifty Midcap was the top gainer among broader indices with weekly gains of 1.61%.

Now let’s talk about the returns over the annual time frame. As this was the last trading week of FY24, we can analyze the annual return of the broader indices in FY24.

The FY24 has been a blessing for Indian equity investors. The market has given superb returns in this financial year. All the broader indices have generated more than 25% returns. Small and Midcap stocks have been the biggest winners of FY24. If we talk about the Nifty 500 space, BSE has been the best performer of the FY with a whopping return of 525.54%. Names like Suzlon, IRFC, HUDCO, and MRPL followed it. We have written about this here.

Sector Analysis??

This week, we saw bullishness on the sectoral front. Only two sectoral indices ended in red. While Nifty IT fell by 0.82% Nifty Media fell by 2.92% during the week. Nifty Media was also the top loser of the week. The media sector has been a laggard in the monthly and yearly time frames as well.

Eight sectors ended the FY24 with weekly gains of more than 1%. Some of them are MNC, PSU companies, Power, realty, metal and auto. Nifty Realty was the biggest gainer of the week with an up move of 2.99%. After the fall in the first half of March, the realty sector has recovered very strongly.

Now let’s talk about the FY24 performance of different sectors. As we mentioned, FY24 was a really strong year for Indian investors. Almost all sectors (except Media) have generated strong double-digit returns. In FY24, two sectors generated more than 100% return. Nifty Realty was the best-performing sector of the FY with a whopping 142% return in the last 12 months (Yeah! A sectoral index has rallied by more than 140%).

In the second place, we had public sector companies as we saw sharp rerating along with strong earnings growth. PSU banks have also performed really with as they have rallied by 96.63% during the last 12 months. The interesting thing is they are still looking very attractive! We have written a detailed thread on the same here.

What should we expect in FY 2024-2025?

As the FY24 comes to an end, the question is what should we expect in 2025? Will it be the same as 2024? Well, we feel that we should temper our expectations. As we analyzed in this newsletter, almost all sectors gave more than 20% return. This kind of move does not happen year after year.

As an economy, we have been really strong and we will continue to remain strong. So, we are in a structural bull market. But as we are going to have the general election in the Q1FY25 in seven phases, we may see increased volatility in the market. The current government will likely win, so we do not expect any major policy changes in the coming year.

The central banks around the world (including the RBI) are planning to reduce interest rates in the next six to eight months. So, we may see more liquidity coming into emerging markets like India and that will help the equity market. But most of the pockets in the market are fairly valued or overvalued at the moment. We saw rerating in multiple sectors including PSU and defence. So, companies will show strong earnings growth in the next 12 months, but we feel that this growth is already priced in and the price won’t move at the same pace. So, we should temper our expectations moving forward.

The sectors to watch out for in FY are IT and Chemical. Many IT companies will see large deals won over the last year generating revenue in FY25. Even though the chemical sector is still facing headwinds, the price may stabilize in the first half of FY25 and there can be some recovery in the second half. Some chemical companies have done solid capex and sitting on operating leverage. Once the business momentum comes in, these names will show non-linear earnings growth.

Our two cents of advice will be to stay away from hot sectors. In every upmove in the market, new sectors emerge as winners. So, if you have missed the rally in some of the overheated spaces, don’t try to jump in late. There are enough pockets in the market where you can find strong businesses at the right valuation.

Quiz??

Every week we ask an interesting question. Answer the question and get a chance to win a 1-month subscription to sharpely Pro!

Q) During the last week, a listed company that had a very hyped IPO in November 2023 hit a new all-time low. What is the name of the company? (hint: The company is from a very well-respected corporate group)

Answer the question by replying to [email protected]

Last week’s answer: Gopal Snacks

Winner: RM Nagarathinam.

That’s it, folks. See you next Sunday!