Indian markets soar, but global and domestic uncertainties linger

Markets will focus on India's underlying strength

The Nifty and the Sensex have gained about 25 per cent since last Diwali. Smaller indices have done even better. The NSE 500 is up over 30 per cent, while the small-cap indices have increased by more than 35 per cent. This is excellent performance against the given global backdrop. India continues to be the fastest-growing large economy. Indeed, the US and India are the only large economies with satisfactory growth. Other regions have struggled with weak growth, high inflation, and geopolitical stress. The Ukraine War continues and the conflict in West Asia has escalated considerably. This has led to fears of energy-supply disruption and continuous volatility. This has also pushed up gold prices, a traditional haven in times of stress.

 

The European Union, the United Kingdom, and Japan are suffering from low growth. China has rolled out a sequence of stimulus packages to stimulate growth. The United States seems to have moved into a phase of healthy growth with relatively low inflation and the Federal Reserve has started cutting rates. On the domestic front, companies have registered weak results in the first half of 2024-25. The first quarter saw government infrastructure spending cut due to the elections, while the second quarter was hit by seasonal factors. The Reserve Bank of India has maintained projections of 7.2 per cent gross domestic product growth for the ongoing year, but the momentum seems to have slowed in recent months. The rupee has dipped to record lows versus the dollar even as the Fed moved into a cycle of easing. Notably, the rupee has remained remarkably stable over the past year. Foreign portfolio investors (FPIs) have been marginally net negative in their equity investment in 2024-25, with massive net sales in October. Domestic investors, however, remain net buyers with institutions, mutual funds, and retail all remaining bullish. Mutual-fund inflows as well as direct retail investment have been high, helping to more than balance out FPI selling.

 

Backed by excellent performance in the secondary market, the primary market has witnessed increased activity. A record Rs 1.22 trillion has been raised in the primary market in calendar 2024, with many issues seeing significant oversubscription. Small and medium enterprises in particular have seen bubbles with 100 times subscription in multiple issues. However, the recent Hyundai issue, which raised a record Rs 27,855 crore, saw interest tapering off and the momentum may be slowing. There are several big issues in the pipeline, such as Swiggy and Acme Solar, and public interest in these will bear careful monitoring. Corporate results signal consumption growth is still not broad-based. Several fast-moving consumer goods companies have expressed concern over tepid growth. Auto dealers are complaining about high inventories and hoping for an uptick in demand during the festive season.

 

The first half of 2024-25 has seen some moderation in growth but the second half would be worth watching. Steady stock-market inflows from households indicate a fair degree of confidence and that could translate into better consumption in the second half. There were a series of elections across the world in 2024 with regime changes in several large economies. The National Democratic Alliance government returned to power in India, but with reduced strength. The US is in the final phases of a consequential election, which could result in sweeping policy changes if the Republican candidate wins. Overall, the new Samvat starts with both global and domestic uncertainties, which were partly reflected in the recent stock-market selloff. Hopefully, the underlying strength of the Indian economy will overcome uncertainties.