Last Financial Year Was A Blockbuster For Stock Markets
All indices have been hitting record highs consistently. And that of course has been the situation in the US as well with S&P 500, Dow Jones and Nasdaq all hitting record highs in recent weeks
Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:09) The Last Financial Year Was A Blockbuster Year For Stock Markets. Can The Coming Year Repeat It?
- (07:48) US Federal Reserve Holds Out Again On Interest Rates
- (11:24) State Budgets Are Bigger Than India’s Federal, Yet Few Pay Attention
- (20:01) There Are So Many Lending Apps, Including Fake, That RBI Is Setting Up A New Agency To Monitor Them
- (21:46) India’s State Owned Energy Companies Step Up Renewable Thrust, Latest Is Battery Manufacture
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Markets, Looking Back And Forward, Will The Bounce Continue
What can we take away from recent history? It depends on how recent. If you were tracking the stock markets in the last 6 weeks or so, or post February 10 then it might be a little difficult to gauge where we are right now.
But cast your eye over the year 2023-24 that ended on Sunday and things look encouraging.
The question then is of course how are we poised for 2024-25, the next financial year.
We will come to that shortly.
Before that, let's go over the year that went by.
If you take away Covid19 drops and rises, this was the best in a decade. Then, the Nifty 50 index was up 29% in the last year ended March 31.
The BSE Sensex was up 25 per cent during the year, a little lower than the Nifty50.
The overall market capitalization of all National Stock Exchange (NSE) listed stocks jumped $1.5 trillion, or about 49% in the last 12 months to a near record high of $4.56 trillion.
Also, if you had bought the index around the time the markets had hit their Covid19 lows, then you would have gained almost 71% which means several individual stocks had you bought in, would have performed better.
And I am just talking about large caps, the story could have been rosier if you had bought into small caps and mid cap stocks.
Small- and mid-caps outperformed the benchmarks, adding 70% and 60%, respectively, during the period.
Also remember, all indices have been hitting record highs consistently. And that of course has been the situation in the US as well with S&P 500, Dow Jones and Nasdaq all hitting record highs in recent weeks.
On a comparative basis, the Nifty50 outperformed most of its global peers, except the tech-heavy Nasdaq Composite, which rose 34.2 per cent, and Japan’s Nikkei, which rose 43.35 per cent.
The MSCI World Index rose 23.1 per cent, while the MSCI Emerging Market Index gained 4.7 per cent. (CHECK)
Of course, not everyone would have timed this one, given that it was not just the markets or financial markets but the world at large which did not know where it was going.
By the way, not all NIFTY stocks outperformed or even performed and you would be surprised to note that they included UPL, HDFC Bank and Hindustan Unilever.
A macro view. Overall GDP growth numbers for the last year have been strong and are likely to be around 7.6%, the fastest among large economies. So the economic underpinnings seem sound.
So as we look ahead, what are the factors that are in favour and perhaps not.
For one, the markets, although on the back of some hard talk by Sebi on froth, particularly in the mid and small cap space, have adjusted now.
Which means the entire market is not moving at the same pace and tenor. Instead, stocks and in some cases sectors are branching away, some still up but many down.
The coming year would hopefully accentuate this trend which is good news.
The flip side of course is that investors plunge into lower price stocks because they find them affordable and not pay much attention to fundamentals.
Veteran market analyst Ambareesh Baliga spoke to me last week about sectors like railway stocks where clearly there was unjustifiable exuberance and thus cautioned investors.
Speaking of large investors first, fund flows are only stronger this year as foreign institutional investors have started buying again, after a longish break, for reasons which are only partly clear.
More specifically, FIIs bought shares worth around $24 billion in the last fiscal after selling India for the last two financial years. Domestic mutual funds have bought roughly the same amount, though a little less.
While speaking of FIIs, I mean equities, because they have been buying debt and that itself is likely to rise steadily as India’s inclusion into global indices like the JP Morgan index is formalised in a few months.
This year could see a China bounceback of sorts. Actually, that has already happened, because China markets are up 20% from their bottom, having gained some $1.75 trillion from their bottom.
Could China continue to recover? It might, but China’s problems are largely self caused so it is difficult to say how much the Government really wants the economy to recover or if so which parts.
For example, it does say it wants a greater focus on high tech, like electric vehicles and renewables and those companies are doing better.
Incidentally, China’s manufacturing activity expanded in March for the first time since September, a sign that the world’s second-largest economy is stabilising, reported Bloomberg.
Both manufacturing and non-manufacturing activity levels are up in China right now.
The bottomline from our perspective is, we are unlikely to see funds exiting China and flowing into India. That did happen for a while early this year though.
Looking ahead, it appears that India will continue to draw on more global allocations apart from EM funds while China will pull its own share. Remember, Japan is the other rising star, rather re-rising star when it comes to equity flows.
Now to come to last week, the markets were strong on Thursday, the Nifty50 rose nearly 1 percent.
On the macro side, as things stand, investors large and small are assuming a return of the present Government and thus policy continuity.
India’s economy has been reasonably resilient as compared to many other economies and has faced its fair share of uncertainties, including the prospect of high oil prices which did not happen because India managed to procure cheaper oil from Russia.
Oil incidentally has been up this year as we have been reporting. After falling close to 30% last financial year, oil prices have now risen close to 8% to close at $87 a barrel overnight..
US Interest Rates, When & How
Federal Reserve Chair Jerome Powell last week said again the US central bank isn’t in any rush to cut interest rates as policymakers await more evidence that inflation is contained.
“The fact that the US economy is growing at such a solid pace, the fact that the labour market is still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates,” Bloomberg reported Powell speaking Friday at an event at the San Francisco Fed.
Fresh inflation data released earlier is “pretty much in line with our expectations,” he said. But Powell reiterated it won’t be appropriate to lower rates until officials are sure inflation is on track toward 2%, the rate they see as appropriate for a healthy economy.
Investors are now betting the US central bank will make that first cut in June.
Quite likely it is a bet and a hope and a prayer, given how the interest rate saga has been going.
Mutual Funds Grow in 2023, Will They Still?
Active large cap mutual fund (MF) schemes showed an improved performance in calendar year 2023 compared to their longer-term track record, according to the S&P Indices Versus Active Funds (SPIVA) report.
In 2023, 48 percent of the active large cap funds outperformed the S&P BSE 100, reported the Business Standard.
In the 3-year and 5-year time frame, the share of outperforming schemes stood at just 12.5 per cent and 14.3 per cent, respectively.
The equity-linked savings scheme (ELSS) were the best performers among all the categories as 70 per cent of the schemes managed to outperform the S&P BSE 200, the study shows.
Midcap and smallcap schemes, which are generally the better performers among all categories, emerged as the laggards. Only 26 per cent of the midcap and smallcap schemes managed to deliver better returns than the S&P BSE 400 MidSmallCap Index in 2023.
Of course, mid cap and small caps have been thrashed in the last two months thanks to several reasons including of course regulatory warnings.
Forex Reserves At Another High. Time For Change?
Several policy pronouncements of late, like the imposition of presumptive tax on overseas expenditure by Indian citizens, including via credit cards, has led to speculation that there is a fear that our foreign exchange reserves are draining away.
That never seemed to be the case at least in recent years and thus was equally not clear why we opted for logistically challenging methods of presumptive tax collection which were also to put it simply, burdensome and onerous and thus unfair on a regular or to use that term honest taxpayer.
Will 2024-25 be different?
Well, we don’t know but one hopes that regulators take comfort from India’s record high forex reserves, now at $642 billion as of the last week of March.
At this point, reserves had risen for a 5th straight week.
The rupee closed at 83.40 against the dollar on Thursday.
The previous Friday, it hit a record low but for more technical reasons as one of our guests on The Core Report pointed out including describing the action in the last hour of trade that day.
State Budgets Which Total Up More Than The Centres Are Surprisingly Neglected
An insightful study and column by Ashok K Bhattacharya in the Business Standard points to a few larger issues.
First, as has been argued before as well, we pay very little attention to state budgets in India though together they are bigger than the Union Budget, around which the song and dance levels have reached unprecedented peaks.
Second, some of them are unexpectedly not doing well, as measured by rising fiscal deficits or gaps between expenditure and income.
This has some larger implications as well.
Finally, there is no common thread as such which links the states that have not been doing well. I spoke with Ashok Bhattacharya and began by asking him why it was important for us to look at state budgets and what could be the impact of these budgets going awry.
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An Agency To Monitor Lending Apps
It is somewhat disturbing to note that there are so many lending apps that the Reserve Bank of India wants to set up a Digital Trust Agency.
But the numbers are in themselves revealing.
The Reserve Bank of India has shared a list of 442 unique digital lending apps with the IT Ministry to whitelist with Google. On the other hand, Google has removed over 2,200 digital lending apps (DLAs) from its app store from September 2022 to August 2023, the Business Standard is reporting.
On the other hand, Google removed nearly 4,700 illegal loan apps from PlayStore in a span of two years ending Aug 2023, it was revealed in February this year in a statement made in the upper house of parliament.
Google also said it updated its policy regarding enforcement of loan apps on the Play Store and only those apps are allowed on the PlayStore which are published by regulated entities or those working in partnership with regulated entities.
Business Standard also reported that as part of efforts to curb growing cyber fraud, the Reserve Bank is considering establishing a Digital India Trust Agency (DIGITA) to stop the mushrooming of illegal lending apps.
The proposed agency will enable verification of digital lending apps and maintain a public register of verified apps, sources said.
Apps not carrying the 'verified' signature of DIGITA should be considered unauthorised for the purpose of law enforcement, sources told the Business Standard, adding that this will help fight financial crimes in the digital realm.
DIGITA, once in place, would be entrusted with the responsibility of vetting digital lending apps, they noted.
A verified mark, being what it is presumably, would be more consumer or saver friendly, particularly at a time of rising fraudulent activities and unscrupulous practices in recent times.
Indian Oil For Batteries
India’s oil majors are in a major rush to diversify and add renewable capabilities into their portfolio.
Earlier, we have spoken of how almost all energy companies owned by the Government are pursuing various renewable energy mandates.
Bharat Petroleum or BPCL for example is setting up 7,000 electric vehicle charging stations. It has a network of 21,000 fuel stations.
Oil India and HPCL are setting up green hydrogen plants, solar plants, compressed biogas among other initiatives.
The latest is Indian Oil Corporation which has said it has signed a pact with Panasonic Energy to form a joint venture to manufacture lithium-ion cells in India.
The agreement follows an initial understanding between the two companies on lithium-ion cells in January.
Lithium-ion batteries, which power electric vehicles (EV) and are used to store energy, are expected to play a major role in India's goal to be a net zero emitter of greenhouse gases by 2070, the company said.
