Mayank Mehta, Author at Onesta Capital

December 19, 2024December 19, 2024

Stars are aligned for India’s growth

India’s growth prospects are currently at a historic high, with several factors aligning in its favor. The country benefits from a youthful demographic, technological advancements, a thriving digital economy, and increasing foreign investments.

Additionally, government initiatives focused on infrastructure development, manufacturing, and renewable energy are paving the way for sustainable growth. As India continues to foster innovation and entrepreneurship, it is well-positioned to become a global economic power house in the coming decades. Below are the few factors supporting India’s growth:

Favorable Demographics:

Over 65% of India’s population is below the age of 35, providing a large and growing workforce. Median age of India’s population is approximately 28 years, compared to 38 years in China and 48 years in Japan, offering a longer window to capitalize on its youthful workforce.

Infrastructure Boom:

Infrastructure development in India will significantly boost economic growth by improving connectivity, reducing transportation costs, and enhancing the efficiency of supply chains. It will create jobs, stimulate industries like construction, manufacturing, and logistics, and attract more foreign investments. Better infrastructure will also improve access to healthcare, education, and markets, benefiting rural and urban populations alike. Additionally, it will support sustainable growth through energy-efficient solutions and smart cities, fostering long-term economic stability and quality of life improvements.

Robust Startup Ecosystem

India’s startup ecosystem is one of the fastest-growing in the world, ranking as the third-largest globally. As of 2024, India is home to over 95,000 startups, with more than 110 unicorns (startups valued at over $1 billion). The ecosystem has attracted significant foreign investment, with venture capital and private equity funding crossing $40 billion annually in recent years. Government initiatives like Startup India, tax incentives, and incubator support have spurred innovation across sectors, particularly in technology, fintech, healthcare, and e-commerce. Additionally, India’s young, tech-savvy population and a rising middle class are driving the adoption of new services, creating a vibrant environment for startups to thrive.

Economic reforms:

Over the past 10 years, the BJP government has introduced several policies aimed at boosting economic growth, enhancing infrastructure, fostering entrepreneurship, and improving ease of doing business. Here’s an overview of key initiatives:

Make in India (2014)
GST (2017)
Digital India (2015)
Insolvency and Bankruptcy Code (2016)
Startup India (2016)
Pradhan Mantri Jan Dhan Yojana (2014)
Production Linked Incentive Scheme (2020)
Tax reforms – faceless assessments, corporate rate tax cuts
Renewable sector push
Jan Dhan Yojana

Low Interest Rates and IPO Fundraising

India’s current low interest rate environment is fostering increased borrowing for businesses and consumers, driving investments and economic activity. Additionally, record-breaking IPO fundraising by Indian companies has injected substantial capital into the economy, enabling businesses to expand, innovate, and generate employment. These factors combined create a fertile ground for sustained economic growth, as companies leverage accessible funding to scale operations and meet rising demand.

Domestic Market and Export Boom

India’s large and growing domestic consumer market, driven by a young and upwardly mobile population, offers a robust foundation for long-term growth. Rising disposable incomes and a growing middle class continue to fuel demand for goods and services across sectors.

Simultaneously, India’s record-breaking exports in sectors like engineering goods, pharmaceuticals, and software services are strengthening its global economic footprint. The dual advantage of a vast internal market and increasing exports positions India as a resilient and versatile player in the global economy.

Geopolitical Advantage: As companies diversify supply chains away from China, India is emerging as a key alternative due to its skilled labor pool, stable government, and market size.

Rising Global Influence: India’s active participation in international forums (G20 presidency, BRICS, QUAD) enhances its stature, encouraging trade and foreign collaboration.

Financial Stability:

Forex Reserves: India has robust foreign exchange reserves of over $600 billion, providing a cushion against external shocks.
Debt Management: With controlled fiscal deficits and sustainable public debt levels, India has avoided major macroeconomic imbalances.
GDP Growth: India remains one of the fastest-growing major economies, with a projected growth rate of 6-7% annually, outpacing most global peers.

Conclusion

India’s unique combination of demographic potential, financial stability, digital acceleration, economic reforms, and infrastructure investments positions it as a global growth engine. With proactive policymaking and increasing global alignment, India is poised for sustained, high-growth momentum in the coming decades.

December 19, 2024December 19, 2024

Monthly Market Outlook – NOVEMBER’24

Early Exits, Lost Billions

We all admire legends like Mark Zuckerberg, Warren Buffett, Steve Jobs, and Elon Musk for building billion-dollar empires. Yet, behind their success lies a lesser-known truth: they didn’t do it alone.

Each of them had co-founders or partners or investors who were part of the journey but exited the stage too soon, missing out on the chance to share in the incredible wealth that followed. These four instances offer valuable lessons about vision, timing, and staying the course.

Ronald Wayne (Apple)

Wayne co-founded Apple with Steve Jobs and Steve Wozniak but sold his 10% stake for $800 in 1976. Today, that stake would be worth over $200 billion (making him the fifth richest person)

Marc Randolph (Netflix)

Randolph left Netflix early, before it grew into the streaming giant it is today. While he benefited financially, a full stake in Netflix, now worth over $200 billion, would have translated into several billions more.

Rick Guerin (Berkshire )

In the 1973-74 downturn, Rick was levered with margin loans. And the stock market went down almost 70%. Rick got margin calls, and he sold his Berkshire stock to Warren Buffet at under $40 apiece (today $700,000). His Net worth would have been $4 Billion.

Andy Bechtolsheim (Google)

Bechtolsheim, an early investor in Google, provided the company with a $100,000 check before it was even incorporated. While he did profit handsomely when Google went public, had he retained his entire stake, it could have been worth over $10 billion, far exceeding his eventual earnings.

India in Focus: A Growth Story Unfolding

“India can become AI chip capital of the world”: SoftBank’s Masayoshi Son

“India ‘kind of laboratory to try things”: Bill Gates, Microsoft

“India is becoming ‘startup nation’ of the world” WEF President Borge Brende

“The world is bullish on India” IMF’s Krishnamurthy Subramanian

Economic Indicators Overview – October 2024

Manufacturing PMI: India’s Manufacturing Purchasing Managers’ Index (PMI) moderated to 56.5 in November 2024, compared to 57.5 in October. Despite the slowdown, the index remained firmly in the expansion zone (>50) for the 40th consecutive month. Growth was bolstered by accelerated exports and sales, although the rate of output expansion softened. Rising input costs posed challenges but were offset by resilient external demand.

Services PMI: The HSBC India Services PMI, compiled by S&P Global, held steady at 58.4 in November 2024, marginally down from 58.5 in October. Robust growth in the services sector continued, supported by strong demand and record hiring. Domestic and international orders contributed to sustained momentum. However, input cost inflation surged to a decade-high, leading companies to pass on price increases to clients, reflecting in higher output prices.

GST Collections: Gross GST collections stood at ₹1.82 trillion in November 2024, marking an 8.5% year-on-year growth. This sustained the streak of monthly collections exceeding ₹1.4 trillion for the 33rd consecutive month. The April 2024 record of ₹2.1 trillion remains unmatched but sets a high benchmark for fiscal performance.

Core Sector Production: The index of eight core industries grew by 3.1% year-on-year in October 2024, up from 2.4% in September. Seven out of eight constituent sectors recorded growth, with coal production leading at 7.8% year-on-year. The improvement was influenced by a favorable base effect and steady industrial demand.

Industrial Production: Factory output, as measured by the Index of Industrial Production (IIP), increased by 3.1% in September 2024, a rebound from a 0.1% contraction in August. Growth was observed across all three major sectors—manufacturing, mining, and electricity—highlighting a broad-based recovery.

Credit Growth: Scheduled Commercial Bank credit grew by 11.15% year-on-year as of November 15, 2024, compared to 20.64% in the corresponding period of the previous year. The decline reflects a high base effect following the merger of HDFC Ltd. and HDFC Bank. Despite this, credit growth remains healthy, supported by robust lending activity across sectors.

Equity Market Performance – November 2024

Market Indices

The BSE SENSEX rose by 0.5% in November 2024, outperforming the NSE NIFTY index.
Both the BSE Mid-Cap and BSE Small-Cap indices underperformed the SENSEX, gaining only 0.1% and 0.4%, respectively, during the month.
Top-performing sectors for November 2024 included:
- Information Technology (IT): +5.8%.
- Teck: +4.9%.
- Consumer Durables: +3.0%.

Institutional Flows

Foreign Institutional Investors (FIIs): Net FII outflows from Indian equities stood at – $2.5 billion in November, following significant outflows of – $11.2 billion in October 2024.
Domestic Institutional Investors (DIIs): DIIs continued to be net buyers, with inflows of + $4.5 billion in November 2024, though lower than the + $12.8 billion recorded in October.
Year-to-Date (CY2024) Trends
- Net FII Flows: Negative at – $2.0 billion.
- Net DII Flows: Robust at + $58.2 billion, significantly outpacing FII activity in the Indian equity cash markets.

This divergence highlights the sustained strength of domestic inflows, even amid global market uncertainties and persistent foreign outflows.

Indian Fixed Income Market Outlook – December 2024

Monetary Policy

On December 6, 2024, the Reserve Bank of India (RBI):

Maintained the policy rate, aligning with market expectations.
Reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%.

These measures reflect a balancing act between inflation and growth. The recent inflation print exceeded 6%, breaching the RBI’s upper target range, and prompted the central bank to revise its Q3 FY25 inflation projection to 5.7%. Despite limited room for immediate rate cuts, weaker-than-expected Q2 GDP growth and downwardly revised GDP forecasts for H2 FY25 provide scope for easing. The RBI is anticipated to cut policy rates in February 2025, with inflation expected to moderate to ~4% by Q2 FY26.

Liquidity

Banking System Liquidity: Average system liquidity remained robust at ₹1.42 trillion in November 2024 (vs. ₹1.53 trillion in October).
Core Liquidity: Core liquidity (system liquidity + government balances) declined sharply to ~₹1.4 trillion by November 22, from ₹3.2 trillion at October-end and ₹4.3 trillion at September-end.
- Key drivers included:
  - RBI forex interventions to address currency pressures.
  - Higher cash demand during the festive season.

Fixed Income Market

Yields in the fixed income market remained largely range-bound in November 2024.
The 10-year G-sec yield traded between 6.75% and 6.85%, influenced by:
- A higher-than-expected monthly inflation print, which temporarily pushed yields upward.
- Softer-than-expected GDP data, which moderated yields towards month-end.

Fiscal Policy

Gross tax receipts for April-October 2024 grew by ~11% year-on-year, supported by:
- Buoyant direct tax collections.
- Resilient indirect tax performance.
The record-high RBI dividend further boosted non-tax revenues, strengthening fiscal buffers.

Key Events to Watch in December 2024

1. U.S. Policy Developments: The potential for increased tariffs on foreign goods entering the U.S. remains a critical area of focus as the new administration shapes its trade policies. Such measures could significantly impact inflation, global trade dynamics, and price-sensitive industries and markets worldwide.

2. Federal Open Market Committee (FOMC) Meeting The FOMC is scheduled to meet on December 18, 2024, to deliberate on monetary policy. Following rate cuts in September and November 2024, the policy rate currently stands at 4.5%-4.75%. Markets have largely priced in a 25-basis-point rate cut, though key economic indicators like labor market performance and inflation could influence the final decision.

3. Additional Market Monitors

Festive Season Demand: Consumer spending trends during the festive season will provide insights into domestic economic resilience.
Oil Market Volatility: Fluctuations in crude oil prices may influence inflation and trade balances, impacting energy-intensive industries.
Central Government Capex: Updates on capital expenditure plans by the central government will shed light on infrastructure growth and economic recovery prospects.
GST Council Meeting: Key policy announcements from the Goods and Services Tax (GST) Council could affect taxation and compliance trends, particularly for businesses operating in India.

These developments will play a significant role in shaping market movements and economic sentiment through December 2024.

Looking Ahead – Market Outlook

November 2024 witnessed a series of significant global and domestic developments, resulting in heightened market volatility. Key factors to watch in the coming months include:

Global and Domestic Factors

U.S. Policy Shifts: With new U.S. leadership set to assume office early next year, potential material policy changes, particularly in trade and fiscal strategy, warrant close monitoring.
State Election Impact in India: On the domestic front, recent state election results could reinforce policy continuity, boosting investor confidence and market stability.
Q2 FY25 GDP Performance: India’s GDP growth for Q2 FY25 moderated to a seven-quarter low of 5.4% year-on-year, impacted by:
- Adverse weather conditions.
- Sluggish urban consumption.
- Reduced government spending.
  
  Looking ahead, these challenges are expected to ease, supported by higher government expenditure, festive season demand, and a robust Kharif and Rabi harvest.

Corporate Earnings Trends

Earnings Downgrade Stabilization: The worst of earnings downgrades appears to be behind us, with minimal further reductions anticipated in the second half of FY25.
Sectoral Highlights
- Weak overall consumption is offset by a strong premiumization trend.
- Global demand-driven sectors like Information Technology and metals exhibit resilience, with minimal risk of earnings downgrades.

Valuation Trends

Large Caps: Valuations have corrected closer to long-term averages.
Mid and Small Caps: Despite recent corrections, these segments trade at a premium, supported by robust domestic flows.

Market Strategy

Navigating Volatility: Given the uncertain geopolitical landscape, currency market fluctuations, and relative Indian market valuations, heightened volatility is likely in the near term.
Investment Approaches
- Large-Cap Focus: Well-diversified strategies, such as Large Cap, Flexi Cap, and Multi Cap funds, offer compelling opportunities for medium-term investors.
- Downside Protection: Asset allocation strategies, including Multi Asset Allocation and Dynamic Equity, provide better risk-adjusted returns.
- Mid and Small Caps: Long-term investors with higher risk tolerance can consider staggered allocations to mid and small caps through systematic investment plans (SIPs).

By maintaining a balanced and diversified approach, investors can navigate the current environment while positioning for long-term growth.

December 19, 2024December 19, 2024

Digital landlords

In the modern digital economy, digital landlords have emerged as pivotal entities reshaping industries & consumer behaviors. These are platforms that own and manage digital ecosystems, acting as intermediaries between users and services while commanding significant influence over market dynamics. Unlike traditional landlords who own physical spaces, digital landlords provide the virtual infrastructure where transactions, interactions, and services occur.

Their power lies in their ability to aggregate demand and supply, leveraging network effects to create dependency among users and businesses. By monetizing access to their platforms through fees, advertisements, or data utilization, these companies have become indispensable players in sectors like e-commerce, food delivery, financial services, and entertainment. Giants like Amazon, Zomato, Netflix, and Visa exemplify this model, driving unprecedented convenience for users while amassing substantial wealth and control.

Visa - Moving money globally

Visa has solidified its position as a dominant digital land lord in the global payments ecosystem, transforming how transactions are conducted. Over the past few years, its revenue has witnessed consistent growth, driven by the surge in digital payments and the proliferation of e-commerce. Visa’s expansive network, spanning millions of merchants and consumers across the globe, has made it an indispensable part of everyday financial transactions.

By offering seamless, secure, and instant payment solutions, Visa has created a dependency among businesses and individuals, embedding itself into the fabric of modern commerce. Its success lies not just in its technology but also in fostering a habitual reliance, making it nearly impossible to imagine a world without its services. This section explores Visa’s meteoric revenue growth and its pervasive influence as a digital landlord in the financial landscape.

Visa’s revenue growth has been supported by:

· A strong gross profit margin

· Consistent dividend growth

· A premium valuation

· Growth in payments volume

· Growth in cross-border volume

· Growth in processed transactions

Despite facing stiff competition, Visa continues to reign supreme in the global payments arena. As of 2023, it holds roughly 48% of the credit card market share based on the number of cards in circulation, compared to MasterCard’s 36%.

Zomato - Never have a bad meal

Zomato, one of India’s leading food delivery and restaurant discovery platforms, has evolved into a quintessential digital landlord, revolutionizing how people dine and order food. Over the past few years, Zomato has witnessed remarkable revenue growth, driven by its extensive restaurant partnerships, data-driven personalization, and are lent less focus on user convenience. By creating a seamless ecosystem of food delivery, dining reviews, and subscription services like Zomato Gold, the platform has cultivated an almost addictive reliance among users. This report examines Zomato’s ascent as a digital landlord, exploring the strategies behind its success and its impact on consumer habits.

The company’s growth was driven by its robust execution, which has outpaced Swiggy’s expansion despite both players witnessing significant growth in user base and restaurant partners. Zomato’s monthly transacting users (MTUs) reached 20 million, while Swiggy had 14 million MTUs.

CDSL

Central Depository Services Limited (CDSL) has emerged as a cornerstone of India’s financial ecosystem, functioning as a digital landlord for the securities market. By providing a secure and efficient platform for dematerializing and managing financial assets, CDSL has made itself indispensable to investors, brokers, and financial institutions. Over the past few years, its revenue has seen remarkable growth, fueled by a surge in retail participation in stock markets and increased digital adoption.

CDSL’s platform has created a dependency among users by streamlining processes such as account opening, transaction recording, and custodial services. Its ability to centralize and manage critical financial data has made it not just a facilitator but a gatekeeper of the digital financial landscape, underscoring its influence and in dispensability in the era of digital finance.

Revenue: CDSL’s revenue has grown from Rs 2,843 m in FY20 to Rs 9,073 m in FY24. Over the past 5 years, the revenue of CDSL has grown at a CAGR of 33.7%.

Net Profit: The net profit of CDSL stood at Rs 4,196 m in FY24, compared to Rs 2,013 min FY21.

Over the past 5 years, CDSL net profit has grown at a CAGR of 40.8%.

Revenue Streams of CDSL

The annual issuer charges: Every company (listed issuer of securities) pays annual charges to the depository as per SEBI’s guidelines, this is one of the major sources of recurring income for CDSL. In FY 2024, the collected annual issuer charges were Rs. 25,379 lakhs.
Transaction charges: The next source of revenue is transaction charges and it is also the most significant source. Transaction charges are a fixed amount that the DP has to pay to the depository – CDSL for making any transactions (done by the investors/ traders). The transaction charges are paid by the trader/ investors and DP collects the same and deposits the amount with the depository. In FY2024, the transaction charges collected by CDSL were Rs. 22,158 lakhs.
Online data charges: Then CDSL charges for online data as well. The primary charge collected under this segment is for KYC creation which is a one-time fee and then there are other charges for fetching data as well. In the FY2024, CDSL made Rs. 15,945 lakhs from online data charges.
IPO and corporate actions charges: CDSL made around Rs. 9,256 lakhs from IPO and corporate actions charges in FY 2024.These are the charges paid by the issuer companies for facilitating IPO and other corporate actions by crediting the securities in the investors’ Demat account.
Other segments: While the above-mentioned four categories make up the most of the revenue, there are a few other charges such as e-voting charges, ECAS charges, document storage charges, and others that add up to the revenue stream.

Netflix - See what’s next

Netflix has transformed the entertainment landscape, evolving from a DVD rental service to a global leader in streaming. Over the past few years, its revenue has surged, driven by its subscription-based model, international expansion, and investment in original content. With an algorithm that tailors recommendations and a vast library of binge-worthy shows and movies, Netflix has created a dependency among viewers, making it a quintessential example of a digital landlord. This section explore show Netflix has leveraged its platform to dominate the industry and reshape consumer behavior.

Revenue Streams of Netflix: Netflix’s revenue comes from several sources, including:

Subscriptions: The majority of Netflix’s revenue comes from subscription fees, with about 90% of its revenue coming from subscriptions and partnerships in 2022. Netflix offers three subscription plans: basic, standard, and premium.
Advertising: Netflix’s ad-supported tier is a new revenue source, and it accounts for half of new memberships in available markets. Netflix attracts advertisers through programmatic market places like Google Display & Video 360 and The Trade Desk.
Content licensing: Netflix can license out its original content to other services, which brings in revenue. Some of Netflix’s original content, like Stranger Things and The Crown, have become globally popular.
Partnerships: Netflix can form strategic partnerships to expand its reach.

November 22, 2024November 22, 2024

Tatas are blessed by God

The Tata Group, founded in 1868 by 29-year-old Jamsetji Nusserwanji Tata, began as a modest trading venture with an initial capital of just ₹21,000. Today, the conglomerate spans a vast array of industries, from salt to steel, with a market capitalization exceeding ₹33 lakh crore.

The late Rakesh Jhunjhunwala, one of India’s most respected investors, famously said, “The Tatas are blessed by God.”

Jhunjhunwala, who made a significant portion of his fortune through his investment in Titan (bought 6 crore shares of the company at just ₹3 in 2001 and held onto them for more than two decades). This investment delivered an extraordinary 83,250% return.

Investing in Tata Group entities, especially during times of turbulence, presents a compelling case. Let’s deep dive (not a recommendation to invest):

Tata Motors:

What went wrong?

-> Jaguar Range Rover sales dropped massively

-> The ambitious low-cost Nano car failed to capture the market

-> COVID-19 Impact

-> Demonetization & GST Fallout

-> Shrinking Domestic Market Share

Stock declined 89% from Rs. 600 to Rs. 63

Action taken

-> Tata turnaround plan

-> New models introduced and focus on hatchbacks, SUVs & EV

Revenue touched all time high of Rs. 4.4 lac crore in FY 2024 – growing by 25% CAGR in last 2 years

Stock appreciated from Rs. 63 to Rs. 1150

Titan:

What went wrong?

-> Lockout in Hosur factory

-> Low net profit margin

-> Low return on capital employed

Titan share was available around Rs. 3 in 2003

Action taken

-> Leveraged ‘Tata’ brand

-> Aggressive marketing of Tanishq, Skinn and Titan (watches)

Revenue touched all time high of Rs. Rs. 50,000 crore in FY 2024

Stock appreciated to Rs. 3,800 in 2024

Voltas:

What went wrong?

-> Intense competition from foreign brands

-> No advance technology

-> No customer loyalty

Stock price fell from Rs. 12 to Rs. 2.8 in 2001

Action taken

-> Invested 1% of revenue in training

-> Foreign collaborations

-> New product introductions

Revenue touched all time high of Rs. Rs. 12,000 crore in FY 2024

Stock touched all time high of Rs. 1946 in 2024

Trent:

What went wrong?

-> Intense competition from Pantaloon (2005-2006)

-> Low footfall

-> No Brand loyalty

The stock was available around Rs. 40 in 2008

Action taken

-> Launch of fast fashion brand Zudio

-> Restructuring of Westside

-> Close of loss making stores

Revenue touched all time high of Rs. Rs. 12,000 crore in FY 2024

Stock appreciated to Rs. 7,500 in 2024

Tata Elxsi:

What went wrong?

-> No growth in business

-> Recession in Japan (auto sector)

-> Wrong investments in movie VFX

The stock fell to Rs. 20 post doc com crises (2001)

Action taken

-> Focus on technology & AI

-> Focus on operating cash flows, EPS, and dividend

Revenue touched all time high of Rs. Rs. 3,500 crore in FY 2024

Stock appreciated crossed Rs. 9,000 in 2022

November 22, 2024November 22, 2024

India in the Era of Trump 2.0: What to Expect

With Donald Trump set to return to the presidency, there is considerable uncertainty surrounding his policies, especially as foreign investors are withdrawing capital from global markets at record levels. According to Nomura, Japan’s leading investment bank, emerging markets are likely to be affected—primarily China—but India stands to benefit the most from this shift.

Moody’s ratings suggest that New Delhi could gain significantly as global power dynamics shift under Trump 2.0. The US accounts for about 18% of India’s merchandise exports, with key exports including electronics, pearls and precious stones, pharmaceuticals, nuclear reactors, petroleum products, and to a lesser extent, iron and steel, autos, and textiles. In addition, India is one of the world’s leading exporters of services, particularly IT and professional services (including global capability centers involved in outsourcing value-added services). The US remains a key customer for these sectors.

Trump’s Top Priorities: Reducing US Debt, Boosting Domestic Manufacturing, and Tackling Illegal Immigration

So, how exactly will Trump’s second term impact India? Let’s break it down.

1. Geopolitical Stability with Reduced Tensions in Ukraine

Trump is likely to reduce US funding to Ukraine and prioritize domestic issues. This could lead to a reduction in global geopolitical tensions, creating a more stable international environment. A reduction in military spending and focus on domestic policies may be more favorable for India, especially in terms of global stability and security, allowing India to focus more on economic growth and regional security issues.

2. Higher Tariffs on China Could Benefit India

Trump has hinted at imposing significant tariffs (60%) on Chinese imports, which would help reduce US debt and incentivize local manufacturing. As a result, businesses looking to avoid high tariffs on Chinese goods could shift their supply chains to India, giving a boost to Indian exports. India could become a key beneficiary of this trade reorientation, particularly in sectors such as electronics, textiles, and automotive components.

3. US Inflation Could Lead to a Stronger Dollar

With higher tariffs and a push for increased domestic manufacturing in the US, inflation in the US is likely to rise. This, in turn, could push the US dollar to strengthen. While a strong dollar may lead to capital outflows from emerging markets, including India, it could also attract more foreign direct investment (FDI) into India as companies seek alternative, cost-effective manufacturing hubs outside of China.

4. Fossil Fuel Focus May Impact India’s Renewable Exports

Trump’s push for more fossil fuel exploration in the US could hurt Indian firms exporting renewable energy equipment like solar panels and wind turbines. With a less favorable regulatory environment for renewable energy in the US, Indian companies in this sector may face reduced demand. However, India’s broader energy transition strategy, focused on solar and wind, could still find opportunities in other global markets.

5. US Crypto Policies Could Offer New Opportunities for Indian Tech

Trump’s pro-crypto stance may create new opportunities for blockchain and decentralized finance technologies. India, which has been cautious about cryptocurrency regulation, could find itself at a crossroads: either embrace crypto innovation or continue to regulate it. Indian tech firms with blockchain capabilities might benefit from the global rise in crypto adoption, though India’s stance will be key in determining how much of this growth they can capture.

6. Stronger US Border Policies and Immigration Crackdown

Trump’s likely focus on curbing illegal immigration in the US could affect Indian IT professionals and students, especially those on H1-B visas. Although this might lead to a reduction in the influx of Indian talent to the US, it could simultaneously open up opportunities for Indian firms to offer outsourced services and tech talent solutions to the US market, as American companies look to diversify their workforce sourcing.

7. Tariff Concessions for Tesla Could Stimulate India’s EV Industry

Trump’s close relationship with Elon Musk could lead to favorable tariff concessions for Tesla’s electric vehicle (EV) project in India. If India opens up its market to Tesla and provides incentives for manufacturing EVs locally, this could accelerate India’s transition to cleaner transportation and make India an EV hub for both domestic consumption and exports.

8. Muted Comments on India-Canada Issues Could Strengthen US-India Ties

Trump’s likely more muted approach to the Indo-Canadian tensions (e.g., the Pannun-Nijjar issue) could reduce friction in India-Canada relations, ensuring that these issues don’t become a major stumbling block in broader India-US ties. This could create a more stable diplomatic and trade relationship between India and the US, fostering stronger bilateral cooperation.

9. Supply Chain Relocation Could Accelerate India’s Rise as a Manufacturing Hub

As companies around the world look to de-risk their supply chains and move out of China, India is well-positioned to benefit from this trend. Trump’s “America First” policies, combined with a push for supply chain diversification, could lead to an accelerated relocation of global manufacturing to India. India’s large consumer market, competitive labor costs, and improving infrastructure make it an attractive alternative to China for multinational companies.

10. Greater Economic Collaboration in Technology and Services

India’s export of IT services, particularly business process outsourcing (BPO), software development, and consulting services, is a critical pillar of the US-India trade relationship. Trump’s “America First” rhetoric may push for more collaborative ventures between US and Indian firms, especially in tech, where India already holds a significant competitive advantage. However, trade policies that favor US manufacturing over outsourcing could lead to adjustments in the way Indian companies operate with their American counterparts, but long-term, India’s digital prowess may continue to drive growth in the services sector.

November 22, 2024November 22, 2024

Monthly Market Outlook – OCTOBER’24

The Most Successful deals of all time

Facebook bought Instagram

In 2012, Facebook bought Instagram for $1 billion, which added $153 billion to its market value.

In 2023, out of Meta’s total revenue of $134.9 billion, Instagram’s contribution was $39 billion at approx. 29%

EBay bought Paypal

In 2002, eBay bought PayPal for $1.5billion

Thirteen years later, in 2015, eBay spun off PayPal as an independent public company, realizing $47.1 billion in value – 31 times what it initially paid.

Facebook bought Instagram

In 2006, Google bought Youtube for $1.65 billion.

In 2023, Youtube’s advertising revenue accounted for approx. 10.25% of Google’s total revenue. That year, the video platform’s annual ad revenues amounted to $31.5 billion

Google bought Android

In 2005, Google bought Android for around $50 million. Android helped Google compete with Apple and Microsoft by giving it a mobile OS.

Today, Android powers about 69.7% of all smartphones, making Google a global tech leader

India in Focus: A Growth Story Unfolding

“India deserves to be in list of global superpowers”: Russia’s Putin

“Every product category is on a growth path” Henrique Braun, EVP & President of International Development at The Coca-Cola Company

“Bharat is unstoppable” PM Modi on Make-in-India anniversary

Economic Indicators Overview – October 2024

Manufacturing PMI: India’s Manufacturing Purchasing Managers’ Index (PMI) increased to 57.4 in October 2024 from 56.5 in September, marking the 39th consecutive month of expansion (above 50). Growth was driven by accelerated exports and sales, despite rising input costs.

Services PMI: The Services PMI also showed strength, rising to 58.5 in October from 57.7 in September 2024, indicating continued robust activity in the service sector.

GST Collections: October 2024 registered the second-highest GST collections at INR 1.87 trillion, a 9% year-on-year increase. This marked the 32nd straight month of collections above INR 1.4 trillion, bolstered by stronger compliance, higher output prices, festive demand, and increased transaction volumes both domestically and through imports.

Core Sector Production: The index of eight core sector industries saw a modest 2% year-on-year growth in September 2024, down from 9.5% growth in September 2023, impacted by an unfavorable base effect. Growth was led by five out of the eight core sectors, with refinery production rising by 5.8% year-on-year.

Industrial Production: The Index of Industrial Production (IIP) reflected a 4.2% month-on-month decrease in June 2024, following a 5.9% year-on-year growth in May. This slowdown came as the Mining, Manufacturing, and Electricity sectors showed stable, albeit moderate, year-on-year growth.

Credit Growth: As of October 18, 2024, scheduled commercial bank credit growth stood at 11.52% year-on-year, down from 19.98% in October 2023 due to a high base effect post the merger of Housing Development Finance Corporation (HDFC) and HDFC Bank. For the first time in several quarters, bank deposit growth surpassed credit growth as the loan-to-deposit ratio normalized.

These metrics collectively highlight a resilient economic environment despite base effects and input cost pressures, underscoring sustained expansion across manufacturing and services with strong tax collection performance.

Equity Market Overview

The BSE SENSEX declined by 5.8% in October 2024, mirroring the performance of the NSE NIFTY index.

Mid and Small-Cap Performance: The BSE Mid-cap index underperformed the SENSEX with a 6.9% drop, while the BSE Small-Cap index outperformed, falling only 3.8% over the month.

Sector Highlights: Healthcare, Information Technology (IT), and Teck sectors led performance, with declines of 0.7%, 2.3%, and 4.6%, respectively. All 13 of BSE’s major sectoral indices ended October 2024 in the red.

Foreign and Domestic Institutional Flows: Foreign Institutional Investor (FII) flows into equities were negative in October 2024, amounting to an outflow of $11.2 billion, following an inflow of $6.9 billion in September.

Domestic Institutional Investors (DIIs) continued as net buyers, with a strong inflow of $12.76 billion in October, up from $3.8 billion in September.

For the calendar year 2024 (CY2024), net FII flows into equities totaled $0.6 billion, while net DII investments in the cash markets reached $53.6 billion, significantly surpassing FII activity.

Indian Fixed Income Market Outlook

Monetary Policy: In October 2024, the RBI held the policy rate steady at 6.50% and shifted its stance to “Neutral” from the prior “Focus on withdrawal of accommodation,” signaling flexibility for future rate adjustments. Key factors influencing this shift include improved clarity on inflation, expectations for food inflation to ease by Q4 due to favorable food production forecasts, and a stable growth outlook. With inflation and growth risks balanced, the RBI Governor emphasized that future actions will align with evolving economic conditions and the macro outlook.

Liquidity: Banking system liquidity saw an uptick in October, averaging Rs. 1.53 trillion, supported by government spending. Overall liquidity (system liquidity plus government balances) moderated slightly to an average of Rs. 4.1 trillion by the end of October (compared to Rs. 4.3 trillion in September and Rs. 4.1 trillion in August).

Currency Performance: The rupee depreciated slightly in October 2024, averaging 84.03 against the dollar, after remaining relatively stable at 83.81 in September (compared to 83.90 in August and 83.59 in July).

Fixed Income Market: Fixed income yields eased and were range-bound in the first half of the month, influenced by the RBI’s neutral stance, before edging higher in the latter half amid rising global uncertainties (geopolitical tensions and U.S. election developments). The 10-year G-sec yield fluctuated between 6.72% and 6.85% during the month, closing slightly higher at 6.81% (compared to 6.75% in September), reflecting global cues.

Key Events to Watch in November 2024:

Oil Prices: Volatility in oil prices remains a major focal point for both global and Indian markets. Contributing factors include ongoing geopolitical tensions, China’s recovery following recent fiscal stimulus, and production cut reversals by OPEC+ members that began in December 2023.
US Election Developments: Updates surrounding the United States elections are anticipated to influence market sentiment.
Festive Season Demand: The strength of demand during the festive season will be a key indicator for retail and consumer sectors.
Reserve Bank of India (RBI) Policy Stance: The RBI’s upcoming policy announcements are expected to shape market outlooks, particularly in light of inflation and growth concerns.
Indian and Global Earnings Seasons: Earnings reports from both Indian and global companies will provide insight into corporate health and market direction

Looking Ahead

October Performance: October 2024 was a challenging month for the Indian stock market, impacted by reduced foreign institutional investor (FII) inflows following China’s stimulus, global geopolitical uncertainties, and softer earnings in the initial Q2 results, which largely missed market expectations.
Sectoral Impact: All sector indices closed October in the red, with sectors reporting weaker results seeing substantial sell-offs by Foreign Portfolio Investors (FPIs).
Economic Indicators: Key indicators show signs of a slowdown, including discretionary spending and vehicle sales, while core inflation has risen, signaling potential economic constraints.
Valuations: Equity valuations remain elevated relative to historical norms, with mid-caps trading at significant premiums, followed by small and large caps. Current valuations anticipate growth to sustain, but they offer limited cushion for earnings disappointments across much of the market.
Growth Prospects: Upside potential may come from a recovery in international demand and rural resilience. However, market performance going forward is expected to rely heavily on earnings growth.
Investment Strategy: Given recent geopolitical events and current market valuations, heightened volatility is anticipated. Investors may benefit from focusing on large-cap-oriented strategies, such as Large Cap, Flexi Cap, or Multi Cap funds, over the medium term.
Downside Protection: Investors seeking to mitigate downside risk might consider diversified strategies like Multi Asset Allocation or Dynamic Equity funds.
Mid and Small-Cap Exposure: Long-term investors with sufficient risk tolerance can approach mid and small-cap allocations incrementally, utilizing systematic investment routes to manage exposure.

October 30, 2024October 30, 2024

Seizing opportunities amid market corrections

In light of recent market corrections, we want to provide insights into the factors at play, why volatility is a natural aspect of equity markets, and strategies to navigate the current environment while remaining focused on India’s strong growth potential.

Factors Behind Recent Corrections

Local Influences

Weak Q2 Earnings Across Key Sectors: The second quarter of FY2025 saw weaker performance in sectors like FMCG and automotive, impacting market sentiment. The banking sector is experiencing normalization of non-performing assets, leading to higher provisions, slower deposit growth, and increased costs—factors contributing to slower profit growth. Additionally, prolonged monsoon and lower government spending in the industrial and utilities sectors have affected earnings. However, we expect these to be temporary dips, with a recovery anticipated in the coming months.
High Valuations in Mid and Small-Cap Segments: Elevated valuations, particularly in mid and small-cap companies, suggest that a focus on large-cap allocations and diversified investments across asset classes may be more beneficial in the current landscape.

External Supply Factors

Foreign Institutional Outflows Due to Attractive Valuations in Other Markets: China’s recent economic stimulus, alongside Japan and other emerging markets’ appeal, has drawn foreign institutional investors (FIIs) away from India. FII holdings are now near historical lows, after offloading nearly Rs. 1,00,000 crores in October and Rs. 2,27,000 crores this year. We view this as a short-term trend, with India’s growth narrative remaining compelling in the long term.

Global Factors

US Election-Driven Global Volatility: While upcoming US elections may heighten global volatility, we expect minimal long-term impact on Indian markets.
Geopolitical Tensions in the Middle East: Recent instability in the Middle East may cause short-term fluctuations in oil prices, with limited and temporary effects on the Indian economy.

Technical Factors

Market Indicators Suggesting Correction: The Nifty 50 index’s Relative Strength Index (RSI) recently reached high levels, paired with technical patterns that suggest a correction.

Corrections and volatility are an integral part of equity markets:

Only 4 out of the last 44 CY, had intra-year declines less than 10%

Despite the markets having intra-year declines every year, 35 out of 44 years ended with positive return.

The two graphs highlight that markets typically undergo 10–15% corrections annually, yet often closing the year with positive returns. This highlights the value of staying invested despite short-term fluctuations, as markets tend to recover and reward patience over time.

Path Forward: India’s Resilient Growth Story

Though markets are currently volatile, India’s long-term growth trajectory remains strong:

Economic Resilience: India’s GDP growth continues to surpass historical averages, with recent inflation control measures positioning the economy for sustained expansion.
Robust Liquidity: With mutual fund inflows reaching historic highs of Rs. 25,000 crores per month, liquidity remains strong, underscoring investors’ faith in India’s growth story.
Positive Outlook from Global Institutions: The IMF projects a 7% growth rate for India, signaling that the country’s long-term growth story remains robust.

Strategies for Navigating Market Volatility

Large-Cap and Diversified Allocations: With mid- and small-cap segments appearing overvalued, focusing on large-cap stocks, including flexicaps with a large-cap tilt and multi-asset mutual funds, may offer more stability and resilience.
Systematic Investment Options: Consider using Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) to manage volatility effectively, allowing for cost averaging over time.
Staying Invested for Long-Term Gains: By remaining invested, you position yourself to benefit from India’s promising growth trajectory, as markets tend to reward patience over the long term.

We appreciate the trust you place in us to help guide your investments, and we’re here to answer any questions or discuss tailored strategies that best fit your goals.

August 31, 2024August 31, 2024

Your next crore

For many middle-class investors, a portfolio worth a crore still feels like a distant dream. Many of our investors have touched this milestone recently. As India’s equity culture continues to grow and the Sensex rises, more investors are eager to capitalize on this momentum.

However, we always remind our investors that reaching a crore is just one milestone on your financial journey, not the final destination. While it’s natural to feel excited, remember that the best is yet to come. In fact, each successive crore could take less time than you might imagine in your wealth creation journey.

The sooner you reach that first crore, the quicker you’ll move on to your second, third, and beyond. As illustrated in the chart above, if you invest Rs 50,000 per month at an annual return rate of 15%, it may take nine years to reach your first Rs 1 crore. But don’t be discouraged—if you continue investing, your second crore could come in just three years, and your third in only 2.5 years. This is the extraordinary power of compounding. By the 18th year, you could be adding nearly Rs 1 crore every year to your wealth.

And if you think that’s impressive, consider this: in your 28th year, an additional Rs 4 crore could be added from the ongoing Rs 50,000 monthly investment, while the 30th year could see Rs 5 crore added.

This isn’t just limited to SIPs. For example, it might take ten years for Rs 25 lakhs to grow into Rs 1 crore at a 15% return rate, but the next crore could come in just five years, and the one after that in three years only.

Compounding is like a snowball rolling downhill

It starts small, but as it gathers more snow, it grows larger with each turn. Similarly, reaching your first crore may feel like a long and challenging process because you’re starting with a smaller base. But once you hit that milestone, your portfolio’s growth accelerates, making it quicker to reach the additional crore. You’ll find that the time taken to achieve each additional crore becomes shorter and shorter.

Magic of compounding turns your money into a powerful wealth-generating tool. The key is to stay invested and allow your money to work harder for you as it grows.

Disclaimer: Equity returns are not a straight line, as depicted in the chart. They fluctuate over time, with ups and downs. The above examples are for illustrative and educational purposes only.

August 31, 2024August 31, 2024

Monthly Market Outlook – July’24

Who moved our markets?

It is an indisputable fact that stock prices are driven by liquidity in the short term and fundamentals in the long run.

India’s NSE 500 is one of the best-performing market in the world. We decoded who moved the markets over the last four years:

COVID Strikes: February 2020 to March 2020

Foreign Institutional Investors (FIIs) sold ₹83,000 crore worth of Indian equities.
Domestic Institutional Investors (DIIs) invested ₹72,000 crore.
The market corrected by 35% because of sudden and aggressive selling.

Post-COVID: April 2020 to April 2021

Seeing the cheap valuations of Indian equities and rate cuts across the globe, FIIs infused more than ₹2 lakh crore over the next 12 months.
DIIs were net sellers of ₹1.32 lakh crore.
This mismatch caused the indices to rise by 92% in a matter of 12 months.

DII FOMO: April 2021 to October 2021

DIIs, fearing missing out, turned net buyers, infusing ₹51,000 crore in the next 6 months.
Along with DIIs, FIIs were net buyers as well, resulting in a 26% market rise over 6 months.

Global rate hikes and Russia-Ukraine War:

FIIs withdrew a record ₹3.9 lakh crore from Indian equities.
Markets were resilient due to DII support, with DIIs infusing ₹3.09 lakh crore.
The market corrected by 20%.
Markets moved sideways from October 2021 to March 2023 (18 months).

Rise of domestic investors: March 2023 to Date:

DIIs, sitting on record cash due to SIPs, NPS & EPF money, infused a record ₹3.58 lakh crore, while FIIs sold ₹84,000 crore.
The markets rose by 63%.

Position as of Now:

The markets have fully priced in the economic growth for the next few years. The valuations are not cheap. While a price correction (fall in prices) may not be significant because of liquidity, a time correction (sideways market) cannot be ruled out.

Domestic investors infused a record ₹34,697 cr., ₹40,608 cr. and ₹37,113 cr. in the last three months in equity mutual funds alone. FIIs want to invest in India but valuations are not attractive. Even if the market corrects, say by 10-15%, FIIs will invest heavily. Either way, it’s a win-win for patient Indian long term investor.

Existing investors can continue their investments. Fresh lumpsum should be deployed in funds with flexible approach – Multi Asset Funds and Flexicap Funds.

Quote of the month

There are two ways to increase your wealth:

Increase your means or
Decrease your wants

The best is to do both at the same time.

– Benjamin Franklin, Founding Father of the United States

“India best emerging market story; haven’t ever seen valuations and fundamentals so attractive”: Mihir Vora

“India can become world’s 2nd largest economy by 2031”: RBI deputy guv Michael Patra

India outpaces major economies in growth of intangible investments

Lamborghini bets big on India’s long-term potential

Economic Indicators Overview

Manufacturing PMI: India’s Manufacturing Purchasing Managers’ Index (PMI) for July 2024 dipped slightly to 58.1 from 58.3 in June 2024. Despite the decrease, the index has remained in expansion territory (>50) for the 36th consecutive month, driven by strong production volumes, new order intakes, and overall positive business sentiment.

Services PMI: The Services PMI, reported by HSBC, stood at 60.3 in July 2024. This marks nearly three years of consistent growth, with the index remaining above the critical 50-point threshold that separates expansion from contraction.

GST Collection: Gross GST collections reached INR 1.82 trillion in July 2024, reflecting a 10.3% year-on-year increase. This figure marks the third-highest collection on record and the 29th consecutive month of collections surpassing the INR 1.4 trillion mark. The increase is attributed to rising compliance, higher output prices, and increased tax revenues from imports and domestic transactions.

Core Sector Production: The index of eight core sector industries showed a year-on-year decline of 4% in June 2024, following a 6.3% growth in May 2024.

Industrial Production: Industrial output, as measured by the Index of Industrial Production (IIP), grew by 5.9% in May 2024, up from 5% year-on-year growth in April 2024. This acceleration is supported by stable growth across the mining, manufacturing, and electricity sectors.

Credit Growth: Credit growth for Scheduled Commercial Banks reached 14.01% year-on-year as of 12th July 2024, compared to 20.07% growth as of 14th July 2023. The apparent slowdown is largely due to the base effect following the merger of HDFC and HDFC Bank.

Equity Market Overview

The BSE SENSEX rose by 3.4% in July 2024, mirroring the performance of the NSE NIFTY index.

Mid-cap and Small-cap Indices: The BSE Mid-cap and Small-cap indices outperformed the BSE SENSEX, recording gains of 5.4% and 6.1% respectively.

Sector Performance: Among sectors, Infotech, Teck, and Oil & Gas were the top performers in July 2024, with gains of 12.9%, 11.2%, and 10.5% respectively. Out of BSE’s 13 sectoral indices, 10 ended the month in positive territory.

Net Foreign Institutional Investors (FIIs) flows into equities were positive in July 2024, with an inflow of $3.27 billion, recovering from an outflow of $3.11 billion in June 2024.

Domestic Institutional Investors (DIIs) remained net buyers of Indian equities, with net purchases of $2.80 billion in July 2024, slightly down from $3.43 billion in June 2024.

Fixed Income Overview

Global Trends: Many advanced economies, including the Bank of Canada and the European Central Bank, have started cutting interest rates. In July 2024, the Bank of England began its rate cut cycle, while the US Federal Reserve signaled a potential rate cut starting in September. Meanwhile, the Bank of Japan diverged by raising its policy rate and initiating a quantitative tightening program.

Indian Fixed Income Market – Future Outlook:

The commencement of rate cuts by major global economies and the anticipation of an early rate cut by the US are expected to exert downward pressure on global fixed income yields.
Indian bonds are likely to benefit from easing global yields, strong domestic macroeconomic fundamentals, lower core inflation, reduced bond supply, and improved demand, possibly due to bond inclusion.
Money markets are well-supported by ample system liquidity, driven by seasonality, lower T-bill supply, and Foreign Portfolio Investor (FPI) inflows.
While inflation is expected to ease in Q2 FY25, volatile food prices, robust domestic growth, and global geopolitical uncertainties are likely to keep the Reserve Bank of India (RBI) on hold during its August 2024 policy meeting.
The size and timing of the RBI’s rate cuts in the second half of FY25 (October-December) will likely be influenced by the evolving domestic inflation outlook and global policy actions.

Liquidity:

Banking system liquidity was positive in July 2024, improving to INR 1.1 trillion from a deficit of INR 50,000 crore in June 2024 and INR 1.4 billion in May 2024, supported by government spending and lower cash requirements.
Government balances remained strong, averaging INR 3 trillion in July 2024, compared to INR 4.2 trillion in June 2024 and INR 3.5 trillion in May 2024.
Core liquidity, which includes system liquidity and government balances, stood at approximately INR 4.25 trillion by the end of July 2024, up from INR 3.5 trillion at the end of June and INR 3.6 trillion at the end of May.

Events to Watch in August 2024:

Earnings Season: Indian companies are expected to continue reporting their Q1 FY25/Q2 CY24 earnings from early July 2024 through mid-August 2024. So far, earnings have been buoyant and largely in line with consensus expectations, reflecting the underlying strength of the economy.

Monsoon: As of August 2, 2024, cumulative rainfall was 4.4% above the long-term average (LTA), with weekly rainfall 18% above the LTA. Regionally, central and southern India experienced excess rainfall, northern India received normal rainfall, and east and northeast India saw a rainfall deficit. Out of the 36 sub-divisions, nine have reported deficient rainfall, 14 have seen normal rainfall, and 13 have received excess rainfall.

Looking Ahead:

India’s growth outlook remains positive, with most leading indicators showing strength. While the long-term domestic growth prospects are favorable, current equity valuations reflect much of this optimism, leaving limited room for disappointment.

Recent quarterly earnings were largely in line with expectations, but given the high valuations, any earnings misses could have a more pronounced impact.

Union Budget 2024: The budget remains focused on fiscal consolidation as outlined in the Interim Budget 2024, with emphasis on skill development, agriculture, MSMEs, climate change, and digital penetration.
Policy Continuity: The budget also reflects policy continuity with a sustained emphasis on capital expenditure (Capex) to create more employment opportunities and drive consumption.
Investment Cycle: The investment cycle is expected to continue with increased private sector participation, provided there are no major shifts in global dynamics or risk appetite.
Earnings Outlook: A mid-teen earnings improvement is likely on a broad scale. A recovery in international demand and a rebound in local rural markets could provide additional upside. Future market performance is expected to be closely tied to earnings growth.
Investment Strategies: Large-cap oriented strategies, such as Large/Flexi/Multi Cap funds, appear well-positioned. In the thematic space, the Banking & Financial Services sector looks attractive due to relatively favorable valuations.
Mid and Small Cap Allocations: For investors with a medium-term perspective, staggered allocations in Mid and Small Cap segments through a systematic investment route may be prudent.

August 5, 2024August 5, 2024

Castles are not built in the air

Last week, the Nifty 50 Index touched a significant milestone, crossing 25,000 points. This is noteworthy not just for the number itself but for the pace at which it was achieved—just 221 trading sessions, or roughly eleven months. While this milestone is cause for celebration for many investors, whose portfolios are also reaching all-time highs, we believe it’s a prudent time to reassess the risks in equities.

Valuation Concerns:

Price to Earnings Ratio: The trailing P/E ratio of the BSE500 currently stands at 31x, a level comparable to the pre-COVID era and about 10% higher than the 2007 peak. While these elevated valuations have persisted for some time, the current macroeconomic and earnings backdrop differs significantly from previous periods. In 2017 and post-COVID, low interest rates were a crucial support for these valuations. Today, however, the primary driver is earnings.

Price to Book Ratio: On a P/B basis, the BSE500 is trading at 4.5x, which is 20% higher than pre-COVID levels but below the 2007 Global Financial Crisis peak of 6.5x. The difference lies in the Return on Equity (RoE) profile—while the BSE500 RoE was 25% at the 2007 peak, it was just 10% in 2018 and is around 15% today.

Market Cap to GDP Ratio: The market cap to GDP ratio has once again reached the previous peak of 150% from 2007. This metric effectively captures both primary and secondary market sentiments. However, the economic backdrop has changed—while nominal GDP was growing in the mid-to-high teens in 2007, it is now struggling to reach double digits. This disparity suggests that current market valuations may be out of sync with the real economy.

Why Do Valuations Matter?

When it comes to investing, the initial valuation at which you enter a position is crucial in determining your medium-term returns. While the impact of valuations on short-term performance can be less predictable, their influence over the medium term is undeniable and often decisive.

In light of these rich valuations across multiple metrics, we advise exercising caution in the current market environment. While there may still be opportunities, the potential risks should not be overlooked.

Other indicators which may prove that the market is in overvalued zone:

1. Record number of IPOs

2. NFOs raising record money in sectoral funds

3. Promotor selling in secondary market

4. Increase in speculative ideas

However, these parameters overlook the concerns surrounding valuations:

Liquidity: With record monthly inflows from SIPs, EPF, NPS, and insurance funds, the market is currently flush with liquidity. The fundamental driver of these flows is income growth, which, if sustained, will likely have positive spillovers across various asset classes.
Strong Balance Sheets: Historically, Indian and emerging market earnings have moved in tandem. However, since the post-COVID recovery, India Inc.’s earnings have significantly outperformed those of other emerging markets. Additionally, from a corporate balance sheet perspective, Indian companies are now much more deleveraged.
CAPEX Cycle Sustainability: The government has been focused on building infrastructure and has invested record amounts over the medium term. For continued economic growth, it’s essential that this CAPEX cycle remains robust.

Predicting the exact inflection points in a market with strong momentum is very challenging. However, we believe that at this stage, the margin of safety is limited.

What Should You Do as an Investor?

The fundamental drivers of India’s multi-decade consumption and infrastructure growth, are still firmly in place. While predicting market direction is impossible, careful planning is essential. If your financial goal is approaching in 2024, it might be wise to consider moving funds out of equities and into safer investment options.

For fresh lump-sum investments, a flexible approach that allows you to diversify across sectors/asset classes could be prudent—consider options like Multi-Asset or Flexicap funds.

For other existing investors, we recommend to stay invested as India’s long-term growth story remains intact.

For SIPs, it’s advisable to continue them, keeping in mind your financial goals and risk tolerance.

We remain vigilant and committed to providing insights that help you navigate these complex market conditions. Please do not hesitate to reach out if you have any questions or would like to discuss this further.

Favorable Demographics:

Infrastructure Boom:

Robust Startup Ecosystem

Economic reforms:

Low Interest Rates and IPO Fundraising

Domestic Market and Export Boom

Conclusion

Early Exits, Lost Billions

Market Indices

Institutional Flows

Monetary Policy

Liquidity

Fixed Income Market

Fiscal Policy

Global and Domestic Factors

Corporate Earnings Trends

Valuation Trends

Market Strategy

Visa - Moving money globally

Meta

Zomato - Never have a bad meal

CDSL

Netflix - See what’s next

1. Geopolitical Stability with Reduced Tensions in Ukraine

2. Higher Tariffs on China Could Benefit India

3. US Inflation Could Lead to a Stronger Dollar

4. Fossil Fuel Focus May Impact India’s Renewable Exports

5. US Crypto Policies Could Offer New Opportunities for Indian Tech

6. Stronger US Border Policies and Immigration Crackdown

7. Tariff Concessions for Tesla Could Stimulate India’s EV Industry

8. Muted Comments on India-Canada Issues Could Strengthen US-India Ties

9. Supply Chain Relocation Could Accelerate India’s Rise as a Manufacturing Hub

10. Greater Economic Collaboration in Technology and Services

The Most Successful deals of all time

Factors Behind Recent Corrections

Local Influences

External Supply Factors

Global Factors

Technical Factors

Path Forward: India’s Resilient Growth Story

Strategies for Navigating Market Volatility

Who moved our markets?

Quote of the month

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