Japan’s Nikkei 225 completes a roundtrip after 34 years
The Nikkei 225, an index encompassing the top 225 Japanese companies, has recently surged to levels not seen since 1989. This resurgence is noteworthy given the historical context surrounding the index’s previous peak.
On December 29, 1989, amidst Japan’s economic boom years, the Nikkei achieved an all-time high of 38,915. This period, spanning from around 1986 to1990, was characterized by significant economic growth. However, the subsequent downturn, often referred to as Japan’s “lost decades,” marked a prolonged period of economic stagnation.
The decline in the stock market in 1990 was precipitated by tightening monetary policies and stricter regulations on the real estate market. This downturn underscored the challenges Japan faced in maintaining its economic momentum.
Recent upswings in Japanese shares can be attributed to several factors. The implementation of a redesigned tax-free government stocks program for individuals, known as NISA, has played a role in bolstering investor sentiment. Additionally, there is optimism surrounding the prospect of the Japanese economy returning to a semblance of normalcy after years of deflation.
Furthermore, the Japanese market has benefited from gains in US tech shares, with particular attention drawn to the performance of chip giant Nvidia. This transpacific synergy underscores the interconnectedness of global markets and highlights the influence of external factors on Japanese equities.
In conclusion, the resurgence of the Nikkei 225 index reflects a convergence of domestic and international factors shaping the Japanese market. As we continue to monitor these developments, it is imperative to maintain a nuanced understanding of the underlying dynamics driving market trends.
Quote of the month
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
“The essence of investment management is the management of the risks, not the management of the returns”
– Ben Graham, financial analyst, investor and professor (Father of Value Investing)
India emerges as preferred investment destination for Swedish businesses
Investment guru Jim Rogers says Indian economy in a ‘sweet spot’
Blackstone plans to invest $25bn in India over 5 years
India committed to get more investments from Singapore
India is now the No. 1 investment target country among Japanese Companies
It’s hard to be in India and not be excited: Jefferies CEO Richard Handler
India is the next big playground for AI: Samsung VC, CEO JH Han
On India, we are very bullish. This is not just this year and next year. We forsee that India will be growing for the next 25 years, provided the reforms continue: Borge Brende, President, World Economic Forum
Economic Indicators Overview:
Manufacturing PMI: The India Manufacturing PMI surged to a 16-year high of 59.1 in March 2024, up from 56.9 in February 2024. This remarkable increase was propelled by a surge in output and new orders. Notably, the index was driven by heightened inflows from both domestic and export markets, signaling sustained robust demand trends.
Goods and Services Tax (GST) Collection: March 2024 witnessed gross GST collections of INR 1.78 trillion, marking an impressive 11.5% year-on-year growth and securing the second-highest collection ever recorded. This achievement also marked the twenty-fifth consecutive month of collections surpassing the INR 1.4 trillion mark, following the record collections of INR 1.87 trillion in April 2023. Factors such as rising compliance, increased formalization of the economy, a surge in domestic transaction volumes, and enhanced administrative efficiency have collectively contributed to this buoyant tax collection trend.
Core Sector Production: In February 2024, the index of eight core sector industries exhibited a robust year-on-year growth of +6.7%, outpacing the +4.1% jump observed in January 2024 (revised upwards from +3.7%). This growth momentum represented the fastest pace in three months. Notably, seven of the eight constituent sectors recorded positive year-on-year growth, with only fertilizers experiencing a decline.
Credit Growth: As of March 8th, 2024, scheduled commercial bank credit growth surged to 20.41% year-on-year, a notable acceleration from the 15.68% growth observed on March 10th, 2023.
Inflation: February’s Consumer Price Index (CPI) inflation rate dipped to a 4-month low of 5.09%, decelerating from 5.1% in January 2024. However, food inflation accelerated, reaching 8.66%. Meanwhile, Wholesale Price Index (WPI) inflation moderated from January 2024, with the February 2024 print at 0.20%, down 7 basis points from January 2024. Notably, WPI inflation remained positive for the fourth consecutive month.
Trade Deficit: Indian merchandise exports surged by +11.9% year-on-year to $41.4 billion in February 2024, while imports increased by +12.2% year-on-year to $60.11 billion. Consequently, the merchandise trade deficit widened by +12.91% to $18.91 billion as imports outpaced exports in growth rate.
Equity Market Overview:
In March 2024, the S&P BSE SENSEX witnessed a 1.6% rise, indicating positive momentum in the market.
However, the BSE Mid-cap and Small-cap indices didn’t fare as well, with performances of -0.01% and -4.54% respectively, underperforming the S&P BSE Sensex.
Among sectors, Capital Goods, Auto, and Metals emerged as the top performers, registering gains of +6.1%, +5.0%, and +5.0% respectively. Notably, six out of BSE’s 13 sectoral indices ended the month in positive territory.
Foreign Institutional Investors (FIIs) showed a positive sentiment towards equities in March 2024, with net inflows amounting to +$3.7 billion, following a modest inflow of +$0.4 billion in February 2024.
On the other hand, Domestic Institutional Investors (DIIs) continued to exhibit a bullish stance on Indian equities, with net purchases totaling +$6.78 billion, up from +$3.06 billion in the previous month.
In the calendar year 2024, while net Foreign Institutional Investors (FII) flows stood at +$1.08 billion, net Domestic Institutional Investors (DII) investments in the cash markets amounted to +$13.06 billion, surpassing Foreign Institutional Investors (FII) investments.
Fixed Income:
In its early April policy review, the RBI opted to maintain the status quo on both policy rate and stance, aligning with market expectations. While the RBI anticipates robust growth and a decline in inflation for the fiscal year 2024-25 (FY25), it emphasized the potential upside risks to inflation stemming from factors such as food inflation, climate-related shocks, escalating geopolitical tensions, and fluctuations in crude oil prices.
Core liquidity, comprising system liquidity and government balances, saw improvement from INR 2 trillion at the end of February 2024 to approximately INR 2.4 trillion by the end of March 2024. This enhancement was largely driven by RBI interventions and the maturity of forex swaps. Following a period of tight liquidity conditions throughout the second half of fiscal year 2023-24 (2H FY24), system liquidity eased in March, averaging around negative INR 43,000 crore (compared to an average negative of around INR 2.1 trillion in January 2024 and negative INR 1.9 trillion in February 2024), supported by robust government spending and inflows related to forex activities.
Fixed income yields remained range-bound throughout March 2024. The 10-year Government Securities (G-sec) yield responded to global cues, including movements in crude oil prices, US Federal Reserve policy decisions, and US treasury yields, fluctuating within the range of 7.03% to 7.10% during the month. The 10-year G-sec closed the month slightly lower at 7.05%, compared to 7.08% in February 2024 and 7.14% in January 2024. Additionally, the 10-year term premium remained relatively stable or showed marginal negativity.
Expectations of robust growth numbers, moderation in inflation and improving external balances provides RBI leeway to hold rate for longer, while assessing global uncertainty.
Events to watch out for in April 2024:
Q4FY24 Earnings Season: Beginning in April 2024, the Q4FY24 earnings season commences against the backdrop of a previous quarter that surpassed expectations. The Indian economy displays resilience, marked by cooling core inflation and promising growth projections. Recoveries in exports and demand could potentially lead to earnings that exceed expectations.
General Election Developments: Starting on April 19th, 2024, voting for the Indian General Elections will unfold over six weeks across seven phases. Market watchers closely monitor these elections as policy continuity and support hinge on the electoral outcomes
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Commodity Prices: In late March 2024, gold reached an all-time high, registering a nearly 10% increase in 2024. Factors such as central bank buying and expectations of rate cuts have contributed to this surge. Additionally, weakening US dollar and declining yields have bolstered commodity prices. Oil markets remain buoyed near five-month highs due to OPEC+ production cuts, coupled with strong demand outlooks from China and the US. Commodity markets serve as crucial indicators for global markets.
Positive Economic Indicators: The Indian economy continues to display strength supported by demographic advantages, policy reforms, and structural changes. Key leading indicators such as tax collections, industrial activity, and power demand remain robust. Moderating inflation and a potential increase in private sector capital expenditure are additional positive drivers.
Attraction for Global Investors: India is increasingly becoming a preferred destination for global investors due to favorable macroeconomic conditions, expectations of policy continuity, etc. This trend may lead to heightened inflows.
Elevated Valuations: While the broader outlook for India appears positive, valuations remain high overall, with exceptions observed in sectors such as large banks, select utilities, and commodities.
