EF Digest - May 2024

Dear Investors,

The equity market was volatile in April 2024, but ended the month with solid gains. The volatility in the market was caused by global factors. Strong economic data in the US raised concerns about the timing of rate cuts which led to correction in US stocks. All the 3 major indices in the US, the Dow, NASDAQ and S&P 500 closed the month with 4 – 5% losses. FIIs turned net sellers as they sold net equities of Rs 11,200 crores. However, the market received strong support from DIIs as mutual funds bought net equities of Rs 29,600 crores. The Nifty made a smart recovery in last 2 weeks from below 22,000 levels to close the month above 22,600. The Sensex closed the month with 1% gains. The broader market outperformed with Nifty 500 posting 2.5%.

Most developed market indices e.g. Nikkei, DAX, CAC etc were down in April, following the lead of US markets. Hang Seng, which underperformed in March, staged a smart recovery with gains of more than 8%. MSCI Emerging Market Index outperformed the S&P 500 in April, while India outperformed the MSCI EM Index in dollar terms. With developed markets showing clear signs of slowdown, global investors may increase their allocations to emerging markets, which are expected to outperform global markets. IMF revised India’s FY 2024-25 GDP growth forecast upwards to 6.8% from 6.5%. India is expected to get higher share of FII’s EM allocations in coming months and quarters.

In terms of sector performance, PSUs, Metals, Power, Infra, Oil & Gas and Automobiles were the top performing sectors in March, while IT and FMCG continued to be underperformers. Among the market cap segments midcaps and small caps outperformed in April. You should continue to invest in equity funds through SIP. However, you should be prepared for volatility as high inflation in the US can lead to interest rates remaining high longer than the market was expecting.

As far as debt market is concerned, 10 years Government bond yields crept up by 7 bps, but the 1 year (364 days T-Bill) yields softened by 2 bps, indicating gradual mean reversion of the yield curve is gradually reverting back to its normal shape. The current yields provide attractive investment opportunities for longer duration debt fund investors since they can benefit from price (NAV) appreciation as interest rates fall.

In the commodities market, precious metals gained strength, even as interest rates remained high. We expect gold and silver to gain further in coming months and quarters as we approach the end of this interest rate cycle and the beginning of new interest rate cycle. You can add gold and silver to your asset allocation with medium to long term investment horizon.

We wish parents and children, who have appeared for board examination, best of luck and success in academic careers.

Best Wishes,

Ajoy Agarwal,

(Managing Director)