Indian Markets Celebrate New Milestones 

Last week’s market mood was nothing short of exhilarating. Here are the highlights in case you missed the memo:

• Nifty hits new all-time high: The index surpassed the 20,000 mark, the first time since September amidst positive global cues such as a potential decline in US interest rates and revival of foreign investor activity
• BSE’s $4 trillion triumph: The Bombay Stock Exchange (BSE) index proudly joined the elite $4 trillion market cap club, making India the fourth country to achieve this remarkable feat.
• India’s Q2 GDP shines: India registered a staggering growth rate of 7.6%, surpassing all expectations and forecasts. This solidifies India’s position as the fastest-growing major economy globally

Now that you know a brief of what went down. Let’s discuss the key highlights of the week in detail and learn how it affects you as an investor.

📝 India’s Q2 Economic Data Highlights  

India’s Q2 GDP performance stole the show, clocking in at an impressive 7.6%, a pleasant surprise that outpaced the general consensus. Notably, India maintained its lead over China, which posted a GDP growth of 4.9% in the July-September quarter.

The RBI had projected a growth rate of 6.5%. So imagine investor’s delight when the economy outperformed even these official projections.

Manufacturing sector leads the way: The manufacturing sector’s impressive growth came as a surprise as it surged to a nine-quarter high of 13.9% growth in Q2, a remarkable leap from 4.7% in Q1. What’s the secret sauce? Well, it’s a combination of increased volume growth and improved profit margins, thanks to a decrease in raw material prices. And it doesn’t stop there – the mining sector grew by 10%, compared to a 0.1% contraction a year ago, while construction grew by an impressive 13.3% on a yearly basis.

Quoting Chief Economic Advisor (CEA) V Anantha Nageswaran on India’s Q2 GDP, “Based on current trends, it is possible that India may be underestimating its GDP growth and not overestimating it.” 

Investments for the future: There’s a noticeable uptick in investments, reflected in the Gross Fixed Capital Formation (GFCF). Gross Fixed Capital Formation is a measure of a country’s investment in fixed assets, such as machinery, equipment, and buildings. The GFCF increased by 9.5% in the first half of FY24, on the back of the government’s decision to channel funds into building infrastructure.

Domestic consumption: Domestic consumption is a pivotal force constituting approximately 60% of the nation’s economy. In the last quarter, several indicators indicated an uptick in urban consumption. As per the Economic Times, passenger vehicle sales surged, marking a 38% increase. Simultaneously, domestic air travel witnessed a commendable growth of over 20%, illustrating a takeoff in travel activities. E-commerce behemoths such as Amazon and Flipkart shattered records during the country’s festival season. 

📈 India hits $4 trillion Market Cap

The coveted $4 trillion mark in market capitalisation is a feat only achieved by three other countries: US, China and Japan. What’s even more noteworthy is that India’s market cap now surpasses its forecasted GDP of $3.6 trillion for the fiscal year 2024.

Now, the burning question: does this mean our markets are overvalued? Not necessarily. The high market cap can be attributed to Indian companies showcasing stellar growth, which also aligns with the economic stability as shown by our recent GDP figures.

“As per Business Standard, India’s market cap has surged by nearly 15% this calendar year. To put things into perspective, while China witnessed a 5% dip in its market cap, the US, standing as the only market in the top-10 cap club growing faster than India, clocked a 17% increase.”

In the eyes of analysts, achieving the $4 trillion market cap milestone elevates India’s status as the go-to market in the Asia and Emerging Market basket. Foreign institutional investors (FIIs) have also joined the Indian market resurgence, flipping from sellers to net buyers after two months. 

🏦 What Can Investors Expect? 

In light of the Q2 performance surpassing forecasts, there’s a revision in the FY2024 growth forecast, now set at 6.2% as opposed to the initial 6.0%. However, projections indicate a moderation in GDP growth during the second half of FY24. Various factors play into this, including a less optimistic outlook for agriculture output and rural demand, sluggish global growth, narrowing differentials in commodity prices, and the impact of previous monetary tightening.

There’s also buzz about the RBI potentially adopting a hawkish stance in its upcoming monetary policy committee (MPC) announcement on December 8. A “hawkish stance” in monetary policy emphasises a more cautious attitude towards inflation. When a central bank adopts a hawkish stance, it signals a proactive attitude to controlling inflation and maintaining price stability in the economy.