Global growth is projected at 3.1% in 2024 and 3.2% in 2025. The forecast for 2024–25 is, however, below the historical (2000–2019) average of 3.8%, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity and low underlying productivity growth. 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.
Global inflation is forecast to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging and developing economies. Based on the current data, there is still a consensus on 2-3 rate cuts by US FED by the end of FY24.
India’s GDP for the January-March 2024 quarter came in at 7.8%, driven by strong growth in the manufacturing sector. The Indian economy beat most of the estimates and grew by 8.2% for the full year FY24. Many high-frequency indicators indicate that the Indian economy continues to remain resilient and buoyant despite global challenges.
Election:
Outcome of election was taken as a surprise by the markets especially when all the exit polls had predicted clear majority for BJP. But now post formation of the coalition government, the market seems to have accepted the existing government continuing policy as a positive development and has been touching all-time highs.
Another good news for the Indian economy is the prediction of above normal monsoon after being below average last year. IMD in its 2nd forecast recently has again predicted above normal southwest monsoon (i.e. from June-September) and as per latest news article, southwest monsoon has already arrived in Kerala, ahead of schedule.
The Nifty-50 clocked 8th successive year of positive returns in 2023-24. Inspite of the good performance in FY24, Nifty trades at a 12-month forward PE of ~20x, which is near its long period average.
Further, with global liquidity tightening nearing its end, a healthy domestic macro and micro environment along with expectations of above normal monsoon, strong domestic and retail participation and political continuity, bode well for Indian stock markets.
Markets, in the near term, will take cues from: 1) The action or steps by the government and the upcoming budget; 2) the timing and quantum of easing in the interest rate cycle globally and 3) geopolitical uncertainties globally.
India Inc’s earnings growth reverts to mean in the fourth quarter. India Inc, reported a revenue and PAT growth of 10% and 16% Y-o-Y respectively in the fourth quarter of FY24 and excluding the BFSI sector, the growth normalizes to 6% and 10% Y-o-Y respectively. This is compared to 3% and 55% average revenue and PAT growth in 9M’24.
Banks and Automobiles were the two major sectors that drove the overall growth for Q4’24 with Banks reporting 26% revenue and PAT growth Y-o-Y whereas Automobiles had a revenue growth of 15% whereas PAT nearly doubled (growth of 94% Y-o-Y). Other sectors which did well were Power, Metals, Cement, Infra and Capital Goods.
Based on Q4 numbers, India Inc’s story in FY25 will be a more organic and bottom-up narrative that is bereft of secular growth drivers.
Care PMS – Top 5 Holdings Performance Highlights (more than 40% of Portfolio)
- JK Paper: The company delivered outstanding figures when compared to the whole industry where every player struggled and saw a huge impact on revenues as well as EBIDTA margins. Q4’24 results clearly show the distinction between JK Paper and peers and are a testament to the standards that the company has set.
- LT Foods: The company has performed as per expectations with ~10% revenue growth. However, margins were impacted slightly due to freight cost and increase in other expenses. Also, the dividend payout ratio was lower than what the company had stated in its policy which was a negative.
- Arvind: Q4 saw reasonable volume growth along with improvement in EBIDTA margins. Further, they have also decided to shift the AMD business into a 100% wholly owned subsidiary (a precursor to value unlocking in our view). Good payout policy as well as continuous buying from both FIIs as well as DIIs increases our confidence.
- DB Corp: Industry leading performance (all the peers are struggling). Good revenues inspite of it being a slow quarter, strong margins performance. The company has declared a dividend of Rs 13/- for the full year translating into a dividend yield of 4%.
- Zydus Lifescience: Company continue to perform above expectations for the 4th quarter in a row. Management commentary for FY25 is also quite positive. Post the recent correction in the stock price, we feel the current valuations are reasonable.
We have been mentioning since last couple of newsletters that we will look to book profits where there has been a sharp run up in share price in a short span of time and where valuations have increased.
At the same time, for deploying funds we are not finding many new opportunities where risk-reward ratio is favorable as valuations across a lot of small-caps had become stretched. Hence, we have added few large-cap stocks where we feel there is safety as well as upside possibility. Our stance seems to have worked so far as a lot of small-cap stocks have corrected reasonably from their peaks.
Our overall strategy right now is to safeguard the returns made last year and make use of any opportunity arising in case of a sharp/healthy correction. Having said that, we will be keenly watching and evaluating the macro economic situation (especially government’s policy changes if any) and will be fast and nimble to take any course correcting actions.
We would like to end the update with the following quote:
“Accept volatility. Don’t anticipate its end” – Morgan Housel
