Good start to FY24: Indices post best monthly gains since November

Strong global sentiment, foreign inflows help Indian markets outperform most global peers

The benchmark indices, Sensex and Nifty, logged their biggest monthly advance since November last year, gaining 3.6 per cent and 4.1 per cent this April, respectively. Improved global investor sentiment and sustained inflows from foreign portfolio investors (FPI) lifted the markets this month. 

The latest up-move follows four months of weak performance. Between December 2022 and March 2023, the Nifty50 dropped nearly 7.5 per cent, underperforming most global markets. This decline led to moderation in the valuations of Indian equities, helping them play catch-up with global peers. The domestic indices outperformed most global peers in April.

“We believe the valuation froth in the Indian equity market has settled after the recent de-rating. However, with global uncertainties still elevated, Indian equities may remain range-bound in the near term,” wrote Credit Suisse Private Wealth in a note.

The note further said the Indian equity market may post a strong recovery in the second half of the year as major central banks are likely to end their rate-hike cycle given the dwindling global growth outlook.

FPIs poured in over Rs 10,000 crore for a second month in a row as risk sentiment improved after regulators prevented a banking crisis in the developed world.

At the start of the month, FPIs built massive short positions. However, a recovery in global markets, following an intense sell-off triggered by the collapse of Silicon Valley Bank, forced them to cover their short positions.

“Overseas investors started the month with a bearish view. With the markets moving up, they had to cover that. Flows will continue to emerging markets and India will be a beneficiary," said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

India is considered to be an attractive destination for investors given its superior growth rates and promising demographic.

Also, India’s earnings growth outlook is relatively resilient. Analysts said the Nifty index earnings could grow in double-digits for the next two financial years. And they do not expect any material earnings cut given India's corporate fundamentals have improved materially.

Going forward, the US Federal Reserve's monetary policy announcement next month will be one of the key factors influencing market trajectory.

"The markets have had a reasonably nice run. And there could be a bit of a pause now. Still, expectations are that the Fed is going on hold. Even the latest US economic data was mixed. But the markets are going to look through and hope that the Fed may hold interest rates, and take a more positive view that rates are going to come down at some point,” said Holland.