Health Of Wealth – Nov 2023.

1. India’s GDP beats all estimates for Q2FY24, giving a positive surprise of 7.6% YoY growth

The latest GDP growth numbers are significantly higher than what RBI or independent experts thought they would be.

IMPACT: POSITIVE

India’s economy grew at 7.6% in the July-September quarter as against 7.8% in the April-June quarter. In the meantime, the RBI had estimated a growth rate of 6.5% for the July-Sep quarter. So, the actual GDP growth of 7.6% is way above what RBI had estimated.

The higher growth was majorly driven by high Govt. spending and strong urban consumption. Manufacturing activity steals the show with the highest share of 13.9% GVA whereas agricultural activity growth lags due to uneven rains.

Overall, GDP growth remained robust, led by higher domestic demand. On the expenditure side, the government consumption and investments provided a cushion to real GDP growth. However, weaker private consumption growth is surprising and worrisome. On the production side, the industrial sector remained robust, while the farm sector deteriorated.

With sustained momentum of strong GDP growth, India continues to be the fastest-growing major economy in the world.

2. Are the Current Market Valuations Overvalued?

Currently, Nifty and Sensex are all up by a record high.

IMPACT: POSITIVE

With the 4 state election results and the release of the latest GDP growth numbers, markets have hit an all-time high now. The rally in Sensex and Nifty is expected to reach 72,000 and 22,000 respectively in the coming months.

Declining 10-year US treasury yields (from 5% to 4.2%), Potential collective upside (6%-8%) in heavyweight index stocks can propel the Sensex towards 72000.

Our Valuation Analysis goes like this:

1. Nifty at 22,000 Level - PE ratio: 22X PE (with Rs.996 EPS for FY24), is not considered over-valued because of the India – Premium story – closer to the LTA.
2. Nifty at 22,000 Level - Expectation of Rs.1150 EPS for FY25 indicates a potential drop of Nifty PE to 19X PE, suggesting room for large-cap rerating.
3. Top 100 stocks now account for 66% (previously over 70%). Suggest a potential shift favouring large caps to outperform Mid and small caps.

The Potential risks for the same would be Geopolitical uncertainties, FII outflows due to US Economic uncertainties and negative surprises in corporate earnings.

However, the Current phase is a significant milestone for the Indian market as it is in a growing phase.

3. Central Banks worldwide are stockpiling Gold.

Central Banks have emerged as significant buyers of gold in recent years.

IMPACT: POSITIVE

Gold has long been viewed as the “safe-haven asset” - one that can protect investors against periods of economic downturns. Thus, in a country like India, Gold has not just monetary value, but also sentimental value attached to it.

But alongside, in recent years Central banks across the world have also started to accumulate gold way more than they used to a few years back.

Primarily because Gold is a limited resource and acts as a hedge against inflation, volatility etc. In addition to that, as an international commodity, Gold is priced in US dollars so therefore, so any depreciation in the rupee is expected to result in a rise in its price.

Central Banks have been net buyers of gold for quite a long time now, they are holding on to it firmly, thereby providing some support price for Gold. Thus, as long as central banks are maintaining this trend, gold prices are likely to keep rising.

4. Nifty 50Cos posted 28% earnings growth in Q2FY24!

Robust Corporate Earnings for Q2FY 24, largely surpassing the estimates.

IMPACT: POSITIVE

Earnings for Nifty 50 posted a solid growth of 28% as against the expectation of 21%. The corporate earnings for 2QFY24 have been above the consensus expectations, with the BFSIs and Autos being the key drivers.

On an aggregate level,

• 46 companies are either in line or ahead of the expectations in terms of sales growth,
• 40 companies are either in line or ahead of the expectations in terms of their EBDITA results,
• 43 companies are either in line or ahead of the expectations in terms of their PBT results,
• 44 companies are either in line or ahead of the expectations in terms of their PAT results.

Overall, the 2QFY24 corporate earnings ended positively with widespread outperformance across aggregates driven by margin tailwinds.

5. FIIs turn net buyers in November after 2 Months!

FIIs bought Indian Stocks worth about $1 Billion last month.

IMPACT: POSITIVE

According a data released by NSDL, FIIs bought Indian stocks worth about $1 billion last month in which Nifty ended 5.6% higher. The buying by FIIs, DIIs as well and ever-bullish retail investors has led to an increase in the total market capitalization of all BSE-listed stocks to $4 trillion and catapulted the index to all-time high levels.

After being on the selling side in the previous two months FIIs have turned net buyers of Indian stocks in November. The total FII inflow in calendar year 2023 now stands at $12 billion.

Attractive valuations of the Indian equity market, the robust performance of the Indian economy, and the political stability after the BJP’s win in 3 big states can be attributed to the FIIs inflows.

Hence, India continues to prove that it's truly an oasis in the desert.