Market Overview – December 2023
Global growth is projected at 3.1% in 2024 and 3.2% in 2025, below the 3.8% average, amid high policy rates and fiscal withdrawal.
Global economy and markets
- Global growth is projected at 3.1% in 2024 and 3.2% in 2025, below the 3.8% average, amid high policy rates and fiscal withdrawal.
- Recession risk has eased with disinflation and steady growth; risks are broadly balanced.
- The Federal Reserve held rates at 5.25–5.50% on 30 January 2024, seeking more confidence that inflation is heading to 2%.
- Consensus still expects two to three Fed rate cuts by the end of FY24.
Indian economy
- Growth is projected at 6.5% for FY2024-25 and 7% by 2026, with India expected to become the third-largest economy by 2027 at over US$5 trillion.
- Retail inflation eased to 5.1% in January 2024 from a four-month high of 5.69% in December.
- The RBI held rates and will not consider cuts until inflation durably reaches 4%.
- The Interim Budget 2024 continued prior policy, emphasising infrastructure and fiscal prudence.
Indian stock markets
- From October 2023 to 15 February 2024, the Sensex returned ~9.5%, mid-caps ~23.5% and small-caps ~21.5%.
- The rally was driven by domestic inflows and strong H1 mid- and small-cap earnings from better margins on lower raw-material costs.
- The Nifty trades at 19.4x 12-month forward P/E, in line with its average, while broader markets look expensive.
- Near-term cues: the April/May 2024 Lok Sabha elections and the timing and scale of global rate easing.
Corporate performance (Q3 FY24)
- Earnings outperformed, led by domestic cyclicals, BFSI, Cement, Capital Goods and Auto, plus Metals, Oil & Gas and a pharma recovery.
- Revenues grew only 4% while PAT rose ~28%; mid- and small-cap earnings may not justify recent valuation increases.
- As margin tailwinds recede, a high base will require healthy revenue recovery to sustain earnings growth.
Top-5 holdings highlights (45% of portfolio)
- JK Paper: strong volume growth; margins softer on input costs and realisations, but among the best versus peers.
- LT Foods: ~10% revenue growth with margins maintained; an improved dividend policy is a positive step for shareholders.
- Arvind: in line with expectations, with positive commentary on margins and growth; valuations still attractive versus peers.
- DB Corp posted strong advertising revenue growth; Zydus Lifesciences beat expectations for a third consecutive quarter.
Outlook
- Stretched valuations in micro-caps, primary issues and the SME segment call for caution.
- We are being selective, adding companies with favourable risk-reward while increasing cash.
Disclaimer. This overview reflects the views of the Care PMS investment team at the time of publication and is for information only. Investments in equities are subject to market risk. Past performance is not indicative of future returns. Please read the disclosure document carefully before investing.
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