Dear Reader,
The week may have been a truncated one, but was a happy one still for the bulls, with the broad market reaching an all-time high. Markets gained 2.3 percent over the previous week’s close, a number that puts the euphoria in better perspective and also highlights how as indices have gained in value, even a 1000-point movement in, say the Sensex is not such a big deal.
And sure, markets can change direction and sentiment on the turn of a coin, which is what makes investing such an exhilarating sport, but there are only a few signs of those risks at this point. At this point, it appears like the stars are aligning in favour of the bulls. Famous last words, you think?
Thursday’s GDP data followed by Friday’s PMI print support the strengthening of India’s economic outlook. India’s Q2 GDP growth came in hot at 7.6 percent, much higher than the RBI’s estimate of 6.5 percent. If the central bank could get it so wrong, maybe forecasters could console their own misses.
Gaurav Kapur, Chief Economist, IndusInd Bank, noted in his analysis of the numbers, “GVA registered 7.4 percent yoy growth in Q2 FY24, led by the manufacturing sector’s double-digit growth of 13.9 percent yoy on the back of a favourable statistical base and a pick-up in the sector activity during the quarter. Services sector growth slowed down to 6.6 percent yoy in Q2 from 10 percent in Q1 FY24 and 8.9 percent yoy in Q2 FY23. The construction sector showed an acceleration in growth on the back of strong public capex spending on roads and robust private residential construction activity.”
That the services sector is slowing down, with software companies facing pressure, and manufacturing is picking up has also been reflected in how investors have been repositioning themselves. Is it any surprise then that mutual funds too are trying to jump on to the bandwagon? Real estate activity has been picking up and this is reflecting in GDP numbers too, and while affordable housing may be under the weather, demand for luxury housing has been strong enough to move the overall needle, it appears. High frequency data, as tracked by the Pro Economic Tracker too points to healthy activity in November.
While these numbers are playing a soothing tune, softening US bond yields are not only sending their indices up but leading to a pink-tinged scenario for Indian equities, too. Fund manager Ananya Roy points out, “As US yields have fallen while Indian yields have stayed put, the yield-spread has widened from 2.5 percent in October to almost 3 percent in November. Higher spreads draw interest towards emerging market assets, including Indian equities. This explains the sharp reversal in FII sentiment last month.”
This week has seen expectations firm up for rate cuts becoming inevitable next year, with some Fed officials’ comments not doing anything to dismiss that notion. That may have prompted Mohamed El-Erian, a critic of the Fed’s handling of monetary policy in the wake of post-pandemic inflation, to say on X (formerly Twitter) that there will be a lot of market interest in what Jay Powell has to say on Friday. There is a school of thought that believes that monetary policy tightening has some way to go before it can loosen its grip because inflation is not going to keep its head low for long.
The main worries for India’s equity investors lie in the external environment, therefore. But there are some internal ones, too. The softening of services sector growth is one. Agriculture’s weather-related trouble is another. Slowing private consumption, too, does not sit well with a bright economic outlook. This becomes particularly risky as general elections are coming up next year. State election results are due on Sunday, December 3. Will the government stay the course on fiscal discipline or feel pressured to turn populist is a fear investors always harbour. After that’s out of the way, the monetary policy committee decision on rates also falls due next week. A stronger than expected GDP growth number raises the possibility of a pause on rate hikes getting extended.
All of this may seem daunting for an investor and it undoubtedly is. But if you have driven on Indian roads, then it could seem easy compared to avoiding potholes, scraping your undercarriage on giant speed-breakers, getting blinded by high beam lights, dealing with wrong-side driving and state transport drivers thinking they are riding a bike and not driving a bus, and all of that fun in a 10-km stretch.
Cheers,
Ravi Ananthanarayanan
(Your favourite regular Weekender columnist Manas Chakravarty is on a break and will be back soon)
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Here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:
MC Pro Inside Edge
Also, you may already have seen MC Pro Inside Edge, a recent addition to the Pro offering, which brings you a fly-on-the-wall view of the latest goings-on at Dalal Street. If you have missed it, then go here, for the latest in this week.
Stocks: Tata Technologies, Paytm, Weekly Tactical Pick, Lemon Tree Hotels, HAL, ESAF SFB, Trent, Craft Automation, LIC, Concor and Aptus Value.
Companies
Eicher stock advances 14% in a month. Can its ‘Himalayan’ rally continue?
Can green energy help NTPC realise its valuation potential?
Tech and Startups
India’s top SaaS firms are gearing up their workforce for AI innovation blitz
Start-up Street: Bumper exits in 2023 provide cheer for VC investors Hits and misses: How ChatGPT’s first year to lure enterprise customers went
Personal Finance
Standalone health insurers see more complaints than general insurers: Mumbai ombudsman
Are Indians retirement ready? 67% say yes, but there’s a catch, PGIM India MF Survey shows
How to accumulate gold for your children's wedding?
Policy and geopolitics
The Eastern Window | China is seeking European alliances independent of the US MCA seeks to shine light on hidden owners of companies
Chart of the Day: Index inclusion demolishes the rate differential argument for India’s bonds RBI sees risks in how banks treat deposits or retail customers
Sectors
Investors in metal stocks should keep a close eye on Latin America
The new charter that the Railways must have
Agrochemicals exporters' revenue weakness may spill over to 2024
EV push stalls in America, but gains momentum in India
Start-up Street: Bumper exits in 2023 provide cheer for VC investors CGD sector: Why the sector deserves a relook now
From the Financial Times (free to read for Pro subscribers)
Elon Musk/X: one-man band will face wrath of stakeholders he dismissed
Charlie Munger, Berkshire Hathaway vice-chair, 1924-2023
Gold: the consequences of war are shock and Au
COP28 UAE
COP28: India’s green hydrogen transition to the fore
Chart of the Day: Tax rates on fuel fell in major economies between 2021 and 2023
Too little. Too late. Too slow. But could COP yet turn the tide on climate change?
COP28: 2023 is set to be the hottest on record, the time for action on global warming is now
Miscellaneous
China’s low-carbon success highlights cracks in its political system
AI Global Regulations: What’s needed?
Gujarat’s marketing acumen can be a template for other states
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