Global growth seems to be holding on in 2023. Global GDP is expected to grow at 2.7% this year, 100 bps above the Bloomberg forecast of a year ago whereas USA is forecast to grow at 2.4%, 200 bps above the consensus forecast of a year ago. Further, since the end of 2022, sequential core inflation in G10 economies combined has fallen from 6% to 3%.
However, global economy is fraught with uncertainties which have been compounded by recent developments in the Persian Gulf. Depending on how the situation develops, crude oil prices may push higher. Further, the relentless supply of US Treasuries and continued restrictive monetary policy in the US (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive. At current levels, US stock markets have greater downside risk than upside. If the downside materialises, it will have spillover effects on other markets. Fraught geopolitical conditions can cause a general increase in global risk aversion.
International Monetary Fund (IMF), in its World Economic Outlook (WEO), October 2023, revised its growth projection for India for FY24 upwards to 6.3% from 6.1% projected in July 2023. In July 2023, IMF had already revised its projection of India’s growth for FY24 upwards from 5.9 per cent announced in April 2023. According to the IMF, this reflected stronger-than-expected consumption growth during April-June 2023
Further, core (non-food, non-fuel) inflation softened to 4.5% in September from 4.9% in August. This is the lowest core inflation recorded in the last 42 months. Besides, August was the seventh consecutive month that core inflation has remained within the RBI‟s upper tolerance band of 6%.
Since April 2023, Indian markets have delivered around 8% returns upto October given weakness in global markets, recent spike in crude oil price, rise in geopolitical uncertainty due to conflict in Israel and impending political uncertainty ahead of Lok Sabha elections. However, India’s macroeconomic outlook for FY24 is bright and is solidly underpinned by strong domestic fundamentals.
Further, Q2’24 results have been above expectation which has resulted in Small-cap index again nearing its ATH after sharp correction witnessed in October due to geopolitical tensions.
However, we expect next 3-4 months to remain extremely volatile given uncertainty due to Lok Sabha elections as well as rise in geopolitical tensions.
The 2QFY24 corporate earnings ended on a buoyant note with a widespread outperformance across aggregates driven by margin tailwinds. Aggregate sales for the top 500 companies grew by 4% whereas PAT grew at ~19% driven by benign commodity prices.
Sectoral growth was driven by Automobiles, Oil and Gas, Insurance, Banks and Capital Goods. Slowdown was more pronounced in globally linked sectors like Chemicals, IT, Metals, followed by low ticket consumption which have been the major pain areas.
Care PMS – Top 5 Holdings Performance Highlights (40% of Portfolio)
- JK Paper: The Company performed better than expectation as the results were expected to be subdued due to fall in realisation. Further, Balance Sheet has improved significantly with healthy reduction in net debt.
- LT Foods: The performance has been above expectation with a sharp improvement in margins due to benefit from lower freight costs. Further, the company is also taking shareholder friendly measures and have also revised their dividend policy.
- Arvind: Though the performance was in-line with expectation, future commentary by the management is quite positive with management hinting at margin improvement as well as focusing on growth. Valuations cheap vs peers.
- DB Corp: Very strong performance, margins improvement trajectory continued, already declared Rs 5 as interim dividend in H1’24 and with central elections near; there is visibility of strong performance to continue atleast for the next 2-3 quarters.
- Kokuyo Camlin: Though revenues were slightly below expectations, margins improvement trajectory continued. We expect the company to report Rs 4.5-5 EPS for FY24 and at CMP with a PE of ~30x, the valuations seem quite cheap. Further, DOMS IPO in near-term is also another trigger for share price movement.
We had mentioned in our last communique that whenever market has turned positive, we have significantly outperformed the benchmark indices and this time is no different.
| Period | 1 Month | 2 Months | 3 Months | 6 Months |
| Care PMS Growth Plus Value | 2.60% | 5.90% | 13.10% | 33.10% |
| BSE 500 TRI | -2.90% | -0.80% | -1.40% | 10.90% |
Though we don’t expect any major correction but considering the elections and present global scenario, we feel there can be heightened volatility in the short-term and in order to protect the gains of the last 6 months, we have plans to either increase the cash to 10%+ or to increase weight in large-cap stocks where we see a favorable risk-reward ratio.
We would like to end the update with the following quote:
“Accept volatility. Don’t anticipate its end”
– Morgan Housel
