Chief Economist at the National Stock Exchange of India
With the Fed rate cut in September, and the economic stimulus announced by China, the two largest economies of the world have been supported to improve or maintain their growth trajectory as growth falters. The extent of this support remains uncertain for either country, for now. In the US, expectations on the extent of rate cuts have varied with inflation and jobs data over the past many months. While the first cut in September was expected to be followed by more, the latest NFP data points to persistent strengths in the economy, tempering expectations. The latest Fed commentary shows risks on inflation and growth are roughly balanced for now. In China, the stimulus measures in September were necessitated by headwinds on decelerating growth, sustained weakness in the property sector and the links with local government debt, and weak consumer spending. Questions remain on the extent of the stimulus there, while the impending November elections add to policy uncertainty in the US, particularly on global trade, which has lately seen a nascent recovery, according to the WTO. With the two largest economies slowing down, global growth in 2025 is expected to be supported by Euro Area, where the IMF expects growth to have bottomed out in 2024, and countries with a domestic consumption story like India.
Global markets rallied on the 50bps rate cut by the Fed, and positive corporate earnings data in the US, after the carry trade unwind scare in Japan in August. Emerging market equities fared much better in September than their developed market counterparts, thanks to the belated rally in Chinese shares after the stimulus announcement. MSCI EM had its best month in ten and is up ~12% YTD despite a muted October. Led by the US, DM equities have done better this year, with the MSCI World up ~18% this year. Global debt’s sustained rally of four months was tempered to some extent in October with the September NFP data.
Indian markets were up 2.3% in September on the benchmark NIFTY 50 index (life-time high of 26,216 on September 26th), buoyed by foreign inflows in the wake of the Fed rate cut that proved to be fair weather friends, reversing as they did in October, with rising geopolitical tensions and a resurgent Chinese market. Outflows in October at ~Rs 80,000 crore (US$ 8.4bn as of October 17th, 2024) have been the highest ever in a month—higher than in March 2020 (US$ 8.3bn)—but the sheer size of the FPI portfolio in India today (~US$929bn, as of September 2024) means that the market impact has been ~3.3% this month. Our Market Roundup section has far more detail on performance across size, sectors, geography and asset class.
On the macro front, the new MPC stayed put on rates in early October but shifted its stance after years from ‘Withdrawal of accommodation’ to ‘Neutral’, paving the way for an easier cost of funds going forward. The RBI Governor’s recent comments on a rate cut now are noteworthy in this regard. CPI inflation rose to 5.5% in September on an unfavourable base and a near-term rise in food prices. On the external front, the trade deficit dropped to US$21 bn in September, on lower gold demand. On the fiscal side, buoyant revenues have kept the fiscal deficit at 27% of the FY25BE. The South-West monsoon this year has resulted in a surplus of 7.6% over the LPA, with lower variance across states as well, resulting in the net sown area rising by 1.9% YoY to ~111 m ha. Reservoir levels at 157 bcm are up 19% YoY.
After many moons, we have presented a fresh view of the bouquet of high-frequency indicators used to gauge the health of the economy. Our quartet of Consumption, Investment, External and Financial indexes provides a ready and well-rounded picture of the recent path followed by the economy. A near-term top in rural consumption is matched by a resilient urban segment. The External segment remains comfortable despite the recent drop into deficit on the current account, while the Financials index has a differentiated growth trajectory.
In our Markets section, fund mobilisation across debt and equity in September 2024 was at near three-year high of Rs1.85 lakh crore. On the equity mainboard, 13 companies raised a total of Rs14,825 crore of which 54% were new issuances, while 28 SME companies raised a record high of Rs1,194 crore on NSE Emerge. Total debt capital raising stood at Rs1.37 lakh crore. From a state-wise perspective, Maharashtra and Gujarat lead on the EMERGE platform, with a 56% share of the 555 companies listed on it. The two states also account for ~53% of the total capital raised (Rs13,989 crore). Turnover in the secondary markets eased marginally across equity and derivatives. Across the broad categories, while foreign investors were buyers in September (and sellers in October MTD), DIIs (Domestic Institutional Investors) were buyers across both the months. Individual investors turned sellers for the first time in five months, in September; their monthly inflows have averaged Rs9517 crore this fiscal. Activity in the cash segment remained highly skewed with over 77% of the turnover of Rs25.6 lakh core contributed by 20bps of the all the 1.58 crore investors.
The Nobel prizes announced earlier this month underlined the rising importance of a phenomenon in our lives today. More than the study of institutions recognized in the Economics prize—where despite the compelling arguments, there are notable and hard-to-explain exceptions—it is the acknowledgement of Artificial Intelligence as a field of study and its far-reaching consequences that were visible in the Chemistry and Physics Nobels. This isn’t the first time this is being said, but we are well and truly in the “Age of AI” today. This is not an ideal claim in the technological world today. While the RSA and other algorithms in cryptography are safe from quantum decryption, for now, we did see the precise landing and then the ‘catching’ of a 71m, 3600t (when filled) first-stage booster rocket since the last Market Pulse was released. On that upbeat note, our October edition of the Pulse is presented for your kind perusal. As always, we welcome comments and suggestions.