Chief Economist at the National Stock Exchange of India
Long has been the wait, with disappointments more than once, but markets globally seem to be anticipating easier rates again, with the ECB’s June act to be followed by others over the next few months, including the Fed, as the chequered flag becomes faintly visible in the last lap in the war on inflation. The global economy is finally cooling, especially in the developed economies. The IMF’s July update points to a 3.2% growth globally for 2024, with 2.6% for the US, in line with 3.3% and 2.5% seen last year. The Indian and Chinese economies are expected to contribute nearly half of the incremental growth this year, even as the downward trajectory is expected to continue for China. The soft-landing central banks have been hoping for might finally come around. To be sure, rate expectations, may not even be in the same direction—the Bank of Japan raised rates after decades of easing, as inflation remains above target for a prolonged period of two years.
Beyond the growth-inflation trade-off, global markets have seen an attempted assassination and a change in the presidential nomination in the US. The wars in Ukraine and Gaza continue, and there were elections in the UK and France. Amidst all this, global DM equities have returned double-digits (11%) this year, higher than EMs’ 4.7%. A combination of continued political stability with better-than-expected corporate earnings, and strong economic performance underlined by the Union Budget have led the Indian markets in the June-July period, touching all-time highs in July. Foreign portfolio investors joined the party after a hiatus of two months, with US$7.2bn after May. DIIs were there for a while, maintaining their buying spree for 11 months in a row. Markets were up 6.6% in June, followed by another 3.4% in July (till the 26th). Reflecting the Olympic spirits, it’s Citius, Altius, Fortius for the markets thus far!
Elsewhere in the global markets, Emerging market equities outperformed their developed market counterparts in June, led by Taiwan and India. The MSCI EM Index ended the month with a return of 3.6% but sold off in July (YTD: +4.7%; As of July 26th, 2024). Global debt, on the other hand, witnessed a rally in June, and further in July, aided by rate cut by the European Central Bank and easing inflation in the US that cemented rate cut expectations from the US Fed. The US 10-year sovereign yield softened by about 30bps in June and July thus far to 4.2% (As of July 26th), while that in the EU softened by a marginally lower 24bps to 2.4%.
On the macro front, In India, the economy is strong with significant growth in the industrial sector and a robust expansion in both manufacturing and services PMI. The financial sector is resilient, showing substantial growth in bank credit, driven mainly by personal loans and services. The RBI's Financial Stability Report indicates a consolidation in the financial sector with better asset quality and strong profitability. India's trade deficit has decreased due to a greater fall in imports compared to exports. However, rising inflation, particularly in food prices, poses a significant concern. Retail inflation hit a four-month high at 5.1%, while wholesale inflation rose to a 16-month peak of 3.4%, driven by higher vegetable and pulse prices. The recent improvement in the monsoon may help moderate inflation in future quarters, but the Monetary Policy Committee might maintain its current policy stance to observe inflation trends, considering persistent inflation risks.
The Union Budget, our Story of the Month, outlines a strategic roadmap for ‘Viksit Bharat’, aiming to stimulate India’s economic landscape while maintaining a commitment to fiscal consolidation. India’s gross fiscal deficit to GDP is projected to moderate further to 4.9% of GDP and is likely to be sub-4.5% from FY26. This budgetary approach is complemented by the Economic Survey released a day prior, which projects India's GDP growth at 6.5-7% in FY25 and provides a six-pronged approach to sustainably achieve a 7% growth in the medium term.
Market activity has remained on a high, starting with the primary markets with 15 new equity listings, 10 of which were on NSE EMERGE. Our monthly marking of total unique investors at NSE inches close to the 10-crore mark, with 9.7 crore as of June 30th (vs. 7.6 crore in June’23). The overall number of demat accounts between these investors is over 16.2 crore across the two depositories. Average Daily Turnover in the cash markets crossed Rs 150,000 crore for the second time in June, with 1.53 crore participants in over 1.97 crore accounts at an average Rs33,300 per trade.
This month we provide additional insights into the by-now known skewness in the markets. It is known that nearly 89% of the investors in the cash market contributed to 2.6% of the turnover. Conversely, a mere 0.3% of the investors traded over Rs10 crore, are responsible for ~77% of the monthly turnover. Despite their overwhelming numbers, Individuals constitute a mere 15% of this category, while being over 95% in all others.
The fiscal year thus far has seen a 50% jump in ADT at Rs1,22,000 crore, vs. Rs81,721 crore in FY24. The 50% jump dwarfs the 16.5% increase in the options market over the same period. Records were broken on Election Results day (June 4th ), with the cash segment turnover at Rs 2,71,245 crore and 8.85 crore trades. The sharp rise in trading in June led to the NSE vaulting to the top spot among global equity exchanges—the second time after February—with over 86 crore trades.
On the indirect side of the market, Net SIP inflows to the crossed Rs21,000 crore, another record. The overall AUM in the Mutual Fund industry crossed Rs 61 lakh crore, with ~14% in passive funds. The passive share in pure equity is higher at 21% of the total equity AUM of Rs 34.3 lakh crore AUM.
The Summer Olympics are on and while the top positions in the league table are likely to be usual suspects, there is a distinct energy and yearning for a medal winner from our country too. Manu Bhaker’s two medals would be hopefully followed by many more, as a resurgent India needs to be punch by its weight, in sports, in the global economy and other for a beyond.