The global economy is set for modest growth over the next two years amid cooling activity in the U.S., a bottoming-out in Europe and stronger consumption and exports for China. The IMF kept its 2024 global real gross domestic product growth forecast unchanged from April at 3.2% and raised its 2025 forecast by 0.1 percentage point to 3.3%. Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying. With disinflation and steady growth, the likelihood of a hard landing for the global economy has receded, and risks to global growth are broadly balanced.
Fed Policy: The July US annual inflation rate fell to its lowest level since March 2021 lending support to expectations that the Fed Reserve will cut interest rates at its upcoming September meeting. Markets see a 43.20% chance that the target fed funds rate will fall between 4.25% and 4.50% at the end of 2024, a 1% reduction overall.
| Consumption Indicators | Dec 23 | Jan 23 | Feb 23 | March 23 | Apr 23 | June 23 | July 23 | Aug 23 |
| GST Collection | 10.30% | 10.40% | 12.50% | 11.50% | 12.40% | 10.00% | 7.60% | 10.30% |
| Personal Loan | 17.70% | 18.40% | 18% | 17.70% | 17.40% | 17.80% | 15.50% | – |
| Credit Card Transactions | 30.40% | 30.60% | 26% | 19.80% | 17.90% | 17.30% | 15.70% | – |
| Electricity | 0.60% | 5.20% | 6% | 8.00% | 9.40% | 10.20% | 7.70% | – |
| Core Sector | 5.10% | 4.10% | 7.10% | 6.00% | 6.60% | 6.30% | 5.30% | – |
| Air Traffic | 8.30% | 4.70% | 4.80% | 3.70% | 2.40% | 4.40% | 5.80% | – |
| Passenger Car | 4.60% | 15.60% | 14.90% | -3.90% | 18.60% | 1.50% | -4.70% | 12.70% |
| 2-Wheelers | 27.90% | 15.30% | 13.60% | 5.80% | 33.60% | 2.80% | 5.00% | 17.50% |
| CPI Inflation | 5.70% | 5.10% | 5.10% | 4.80% | 4.80% | 4.80% | 5.10% | 3.50% |
| Freight | 10.80% | 12.90% | 15.90% | 14.40% | 9.90% | 12.90% | 14.20% | – |
| Petrol Consump. | 0.20% | 9.70% | 8.90% | 7.00% | 14.10% | 2.40% | 8.50% | – |
With elections behind us and the return of the same Modi-led NDA dispensation and virtually the same cabinet to power, we anticipate policy continuity to drive the overall economic momentum. Further, the budget 2024 has shown the government’s strong commitment to job creation, infrastructure thrust as well as maintaining fiscal prudence though there were some disappointments on taxation related announcements.
The South-West monsoon in India has been ~7% above average so far, in line with the Indian Metrological Department’s (IMD) forecast. Moreover, spatial distribution has been encouraging with only 2 metrological divisions out of a total of 36 facing large excess or large deficient rainfall.
The Indian stock markets in August crossed all-time high with Nifty 50 crossing 25000 level whereas Sensex breached 82000 mark for the first time. Nifty has rallied 11% in the last 3 months as global cues continue to be positive after the US Fed indicated a possible rate cut in September.
Further, post the elections, FIIs stopped their aggressive selling seen earlier in May and became net buyers in June as well as July amid expectations that reforms will continue inspite of a coalition government. This along with continued strong inflow of domestic retail funds have supported markets in case of any correction.
India will continue to command premium valuation: The Nifty-50 trades at 22.8x its TTM earnings. Compared to its EM peers, India has been considered relatively expensive for a long period. An anomaly in a data set can be overlooked, but when consistent, it becomes the norm. India enjoys its premium valuations due to: 1) Nifty PAT, which has compounded by 25%/18%/ 12% over the last 3/5/10 years; 2) a strong, continuous, and stable political setup, with the victory of PM Narendra Modi/BJP (under NDA) for the third consecutive term that provides policy continuity and reforms momentum, 3) a GDP growth rate ranging between 6% and 7% during this period; and 4) healthy macros – stable currency, twin deficits under control, peaking of interest rates, moderating inflation print, and massive development of digital and physical infrastructure.
Nifty 50 registers lowest PAT growth in Q1’25 since September 2020. Nifty 50 Q1’25 earnings witnessed single digit Revenue and PAT growth of 9% and 6% respectively which was as per expectations due to impact of general elections as well as extreme heat wave.
Banks, Auto, Infrastructure, Capital Goods, Pharma and Energy drove the earnings this quarter for Nifty 50 with most of the sectors recording double digit revenues as well as EBIDTA growth. Apart from the above sectors, as far as the broader market is concerned sectors like Auto Ancillaries, Consumer Durables, NBFC, Real Estate, Industrials, Textiles and Defense also did quite well.
FY25 could be the year of healthy but normalized earnings growth as with margin tailwinds fading, top-line needs to recover where signs are not yet visible; else there could be risks to Nifty 50 FY24–26 consensus EPS growth forecast of 15–16%.
While it was being discussed, earlier as well that the liquidity is driving the rally and everyone had concerns around valuations. The current multiple developments, regarding US unemployment data, heightened geo-political issues, unwinding of Yen Carry trades (considering rate hike in Japan) will become a trigger for the correction long overdue and hence we feel the markets may weaken or consolidate on the sidelines.
The current correction is clearly owing to the global reasons, however at the same time, so far, the Q1’25 results have also been okayish. So, we will need more triggers before we see the next up move. Till then we will remain stock specific and will make use of any deep correction to add funds.
We would like to end the update with the following quote:
“Accept volatility. Don’t anticipate its end” – Morgan Housel
