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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
DISCLAIMER: The analysis, comments, views, opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The information provided is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is prohibited or which would subject the AMC or its affiliates to any registration requirement within such jurisdiction or country. It shall be the sole responsibility of the viewer to verify whether the information expressed herein can be accessed and utilized in their respective jurisdictions. The comments, opinions and analyses are rendered as of the date and may change without notice. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. The AMC does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

April 2024

Macro Economic Review
 
 

Global economy continued to its uptrend in April on back of pick up in manufacturing growth as well as continued strength in services. Consumption in the US remains robust as softer inflation supports real disposable income. US jobs market continues to remain sound with low jobless claims and positive real income growth. Chinese economy seems to be recovering helping Europe to turnaround as well. Indian economy continues to demonstrate strength as government spending, strength in real estate cycle and strong bank lending continue to support growth.

US economy remains solid with unemployment rate remaining low at 3.9% at end of April 2024, initial jobless claims better at 208,000 and average hourly earnings strong at 4% YoY. Consumer spending also remains steady with retail sales coming at 0.7% MoM vs 0.9% MoM in previous month. Inflation meanwhile seems to be steady with Core CPI coming at 3.8% YoY vs 3.7% in previous month.

India’s CPI for March came lower at 4.85% vs 5.09% in the previous month. Higher food inflation was offset by lower core inflation. Food inflation continued to remain high at 7.68% YoY led by high vegetable, cereal and pulses inflation. Core inflation continued to soften and came at 3.3% vs 3.4% in the previous month.

Manufacturing Purchasing Managers' Index (PMI) for April remained strong at 58,8 vs 59.1 in previous month. New orders saw strong growth. Services PMI also came strong at 60.8 vs 61.7 in March. New orders and exports showed strong growth. The index of eight core industries grew at 9.9% YoY in March. Cumulative output of eight core industries for the FY24 increased by 7.5% YoY vs 7.7% in previous year. Bank credit continued its strong growth in April growing by ~15% YoY.

India’s merchandise trade deficit fell to USD 15.6 bn in March vs. USD 18.7 bn in previous month. Exports contracted 0.7% YoY due to lower petroleum sales even as non-petroleum exports increased 8% YoY. Imports were down by 6% YoY on back of lower oil and gold imports. Net services surplus fell to USD 12.7 bn vs USD 13.1 bn in previous month. FX reserves at the week ending 26 April were USD 638 bn, down USD 8 bn from the end of March 2024.

Net direct tax collections rose by 17.7% to INR 19.6 trillion in 2023-24 as compared to INR 16.6 trillion collected in 2022-23. The collection has exceeded the budget estimate by nearly 7.4% and revised estimated by 0.7%. The government collected INR 2.1 trillion GST in April 2024 (up 12.4% yoy) vs INR 1.8 trillion collections made in March 2024.

Overall domestic demand and activity levels remain healthy as investment and capex cycle remains firm. Strong bank lending is providing solid support to growth. Core inflation has been trending down steadily helping to keep inflation within range. Global growth seems to be steadier providing a positive macro back-drop with declining inflation.

  
Equity Market

 

  

The Nifty Index recorded a gain of 1.2% in April, rising for the third consecutive month. The mid-cap and small-cap. indices rebounded from the March sell-off and were up 5.8% and 11.4%. Global markets ended on a mixed note. Hong Kong (+7%), Russia (+3%) and Malaysia (+3%) were the major gainers, whereas US Dow Jones (-5%), Japan (-5%) and Germany (-3%) declined the most. While slower than expected US GDP growth, and pickup in inflation along with ongoing geo-political situation kept investors worried, the worries abated a bit, helped by fall in the crude oil prices from their recent peak. Other key developments: (1) the RBI MPC voted with a 5-1 majority to hold the repo rate at 6.5%; (2) IMF, ADB and World Bank revised FY2025 GDP forecast upwards; (3) IMD forecasts an above normal monsoon (>106% of long period average (LPA) rainfall); (4) India’s general elections for 543 seats in the lower house of parliament, or Lok Sabha, kicked off on April 19. (results are set to be announced on June 4). FIIs sold in the month of April 2024 to the tune of $1.1bn and DIIs remained net buyers to the tune of $5.3bn.

On the ongoing results season, so far, 4Q trends have been decent. Numbers for large cap IT were weak while for Banks it was mixed. The average earnings surprise so far has been +3%, led by auto and financial sectors; and the run rate on earnings growth is exceeding the muted expectations for 4Q. High-frequency data for April inched up both on a YoY and MoM basis, reinforcing our constructive outlook on India's growth trajectory. GST collections scaled to record highs, touching Rs2.1tn in April, growing 12.4%YoY, while manufacturing PMI softened a tad to 58.8. Credit growth (adjusted for the HDFC merger) remains buoyant, rising 16.1% YoY in April, with the loan-deposit ratio tracking at 77.6%. Within auto sales, while two-wheelers improved to a 5-month high on YoY basis, passenger vehicles moderated both on a YoY and MoM basis. Services PMI slowed a tad to 60.8 in April, as it continues to remain above 60 for 4 consecutive months, on the back of demand strength and rising new orders. Domestic Air passenger traffic slowed in YoY terms (international travelers’ growth healthy), whilst it improved on a sequential basis, while consumer sentiment recorded a further uptick.

India’s broad markets have had a virtually uninterrupted run for the last 12-15 months on the back of continuing strength in domestic industrial and investment activity and stability in consumer demand, particularly at the upper-middle and high-end of the income spectrum. While the general market and economic setup remains stable, the second half 2024 is likely to witness a series of events ranging from outcome of general elections, policy formulation by the new govt, progress of the monsoons and global developments relating to the US elections and the discourse on inflation and interest rates. We reckon these can induce higher volatility in the markets in the coming months. On the other side, on expected lines, we have observed an improvement in overall system liquidity coupled with better deposit accretion in the banking system in recent months. This in turn should support the credit cycle even as the RBI continues to remain vigilant about credit excesses developing within any part of the economy.

Meanwhile, global economies such as the US have been surprisingly resilient in the face of high interest rates. While we have maintained that probability of recessionary conditions appears low, the recent economic strength does decisively push back the possibility of interest rate cuts in the near future. The path of global interest rates during the course of 2024 has turned quite uncertain given continued strength of labor markets and the recent recovery in commodity prices that threaten a comeback of inflation. It now remains to be seen if the deferment in interest rate moderation can be compensated by stronger earnings outcomes for the corporate sector.

We reiterate that while India’s economy basks in a healthy mix of micro and macro factors that favor strong overall growth outcomes, equity markets may possibly overshoot and likely front-end returns with large gains coming in the early part of 2024 and moderate thereafter to reflect risks of various events stated earlier. Risk control will form an essential part of equity allocations for investors hereon, and ensuring diversity of exposure will likely be crucial in our view for 2024. Investors with a 2–3-year horizon can continue investing in a staggered manner. Our over-arching view is that India is at the cusp of seeing a much better economic growth cycle in the coming few years relative to its recent past, which in turn would make its equity markets one of the most attractive investment destinations on a 3–5-year scale, remains unchanged.


 
 
Fixed Income Market
 
 

US treasury yields witnessed a sharp movement upwards, led by the incoming data which reflected higher than expected inflation and continued tightness in jobs market with lower un-employment rate, more job openings and elevated average hourly earnings rate. Market expectations for US rate cut quantum in CY24 got quickly revised downwards by ~40 bps and subsequently US 10-year yields also jumped by ~45 bps during the month. Dollar index hardened from 104.55 to 106.22 during the month putting pressure on emerging market’s currency.

Against the worsening global backdrop, domestic yields also inched up, though to a lesser extent by 13 – 17 bps across the curve, as favorable domestic factors provided support. During the month, 10 yr G-sec (old benchmark) touched the high of 7.23% before settling at 7.19% towards the month end, as the domestic investors saw value at these elevated yields. Foreign investors turned sellers of Indian debt after registering robust inflows over the previous 5 months. Domestic banking liquidity went in deficit with GST outflows, lesser Govt spend and also as RBI intervened in Foreign Exchange (Fx) market to stabilize INR.

Outlook

The global rate cut cycle remains uncertain. While the US FOMC in May policy has re-iterated that the policy rates have peaked and will be cut at some time, timing and quantum of rate cuts remain highly dependent on incoming data, which posts a mixed picture. US 1QCY24 GDP came lower than expected and recent non-farm payroll data also came benign but at the same time, inflation remains elevated. Additionally, US’s fiscal policy especially in the election year will be a critical monitorable.

Domestic fundamental factors continue to strengthen. Core inflation reached all time low at 3.3% in March, even as the headline inflation remained high at 4.85%, led by the food prices. IMD’s forecast of above normal monsoon in CY24 provides relief to food inflation trajectory. While the timing of domestic rate cuts may depend on US rate cut cycle, current domestic real interest rate at ~200 bps is already elevated, and warrants a rate cut going ahead. With policy rates already peaked, favorable domestic fiscal demand – supply is expected to play a critical role in bringing market yields lower. G-Sec supply is expected to be lower with visibility on fiscal consolidation over next 2 years and particularly in 1HFY25 with light G-Sec borrowing calendar. Demand is expected to remain robust from investors like banks, insurance companies, EPFO, NPS etc. Foreign demand will also get a boost from Jun 2024 onwards as G-sec gets included in global debt indices.

India’s external sector indicators have remained resilient; current account deficit for FY24 is expected well below 1%, surplus Balance of Payment and healthy Foreign Exchange (Fx) reserves and provides cushion to absorb global volatility to a great extent. For instance, over the period of Jan to Apr 2024, US 10 yr treasury yield has jumped by ~80 bps while the Indian 10 yr has remained flat.


Overall, risk-reward remains favorable at current juncture with benign fundamental and elevated yields across the yield curve. Permitting risk appetite, it is a prudent time to go long on duration with increased allocation toward funds like Gilt fund, Medium duration fund, Corporate bond fund, Banking & PSU Funds etc on the back of favorable fiscal-demand supply dynamics. Next few months could see bouts of volatility as market struggles to see the first rate cut in US, any uptick in domestic yields on global spillovers should be taken as an opportunity to add further duration. CY2024 will eventually see the rate cut cycle beginning and markets will react much in advance to the expected policy stance change followed by rate cuts thereby upfronting the returns through spread compression over policy repo rate. Active fund management is critical as uncertainties may emanate from domestic inflation, fiscal supply and global backdrop which may influence various yield curve segments differently.






 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Important Information: The views contained in this section are for information purposes only and should not be construed as an investment advice to any party. The views contained herein may involve known and unknown risks and uncertainties that can differ materially from those expressed/implied. The viewers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. Invesco Asset Management (India) Private Limited does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
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