The recently concluded G-20 summit at New Delhi was not the first, but the eighteenth summit since the inception of the group in 1999, and its presidencies are chosen by rotation. Seldom, however, has its annual stewardship aligned so closely with a country’s global leadership positioning. In the emergent multipolar world, India is a voice to be heard from one sixth of humanity. This is a voice of inclusivity at multiple levels, ranging from finance (multilateral development institutions) to society (women-led development) to countries (inclusion of the African Union), and has resonated with our view of ‘Vasudhaiva Kutumakam’ (The World is one family), our ancient civilizational mantra, in these fractured times with the concomitant difficulties of international cooperation. The fight against Climate Change, for instance, is bigger than any the world has ever seen, and India’s support to the cause—despite its low per capita incomes—is a testament to its commitment.
Coinciding with the country, has been a new high for the national benchmark, the NIFTY 50. Reaching 20,000 has taken nearly 28 years since 1995, with three-fourths of that period for first 10,000. Like the broader macro environment that they represent, markets have an underlying theme of continuity about them, beyond the thresholds and landmarks that help us understand them. Nevertheless, it is opportune to reflect awhile on the journey of the NIFTY50 since then. Before we do that, however, let us discuss the rest of the fare in this month’s Pulse.
Global equities broke their rallying spree and sold off in August, accompanied with heightened volatility, thanks to renewed stress in the Chinese property market, slowdown in China and rising global bond yields. Developed equities fell 2.6% in August, while Emerging equities underperformed, with the MSCI EM Index generating a much higher loss of 6.4%, thanks to heavy sell-off in Chinese equities.
Indian equities moved in line and ended in red for the first time in six months, with the benchmark Nifty50 Index falling by 2.5% in August. That said, continued, albeit tapered, buying by FIIs, renewed buying by DIIs, economic resilience, and robust corporate earnings for Q1 FY24 provided some downside support, with India outperforming the broader emerging market pack. Interestingly, small, and mid-caps continued to rally, ending the month 3.3% and 4.6% higher respectively.
In terms of market activity, the average daily turnover in NSE’s cash market segment rose for the fifth month in a row to a 21-month high of Rs 766bn in August, with the share of proprietary traders rising meaningfully over the last few years. Direct investments by retail investors have come off this year, with their share of total cash market turnover in FY24 thus far falling to eight-year lows. That said, registrations are rising, with new investor registrations at 1.6m in August being the highest in the last 19 months. Indirect retail participation, however, has remained robust—evident from record-high SIP inflows in August and surge in new investor accounts with depositories.
Global debt remained under pressure for the second month in a row. The US rating downgrade, announcement of higher-than-expected borrowings and strong economic data resulted in bond yields rising in the US, particularly at the long-end. Indian debt market also sold off at the short end amid a sharp spike in inflation reading, surge in crude oil prices and dry spell in August. The US Dollar strengthened against all major currencies in August, benefiting from resilient economic performance and higher bond yields. This, in turn, resulted in EM currencies depreciating last month, including the INR that ended the month 0.7% lower at 82.8 against the dollar.
Our Story of the Month takes a deep dive into FY24 budgets of 21 states—contributing 93% to India’s GDP. Key takeaways include a) Tapering support from the Centre, which in turn could put pressures on states relying heavily on the Centre, b) Strong capital spending for the third year in a row, leading to capital to revenue expenditure ratio improving to a six-year high of 21.7% in FY24BE, and c) Reducing reliance on market borrowings, even as inter-state disparity remains huge. Overall fiscal deficit for these 21 states is pegged at 3.2% of GSDP vs. 3.5% in FY23RE, but with a wide range of 1.8% (Gujarat) to 5% (Punjab). A detailed version of this analysis will be released in due course.
On the macro front, GDP growth in Q1 at 7.8% was in line with expectations, supported by a pick-up in consumption demand, front-loaded capital expenditure by the Centre as well as states and, recovery in real estate demand. Other high frequency indicators such as eight core output and PMI show that economic activity is holding up well in the current quarter as well. Headline inflation, on the other hand, unexpectedly spiked to a 15-month high of 7.4% in July, led by a sharp surge in vegetable prices, particularly tomatoes, only to ease to 6.8% in August, bettering expectations. Interestingly, vegetables contributed nearly 65% to headline inflation in July, excluding which inflation rose by a modest 20bps MoM. After the driest August in the last 120 years and consequent dip in reservoir levels, inflation woes may linger on for a while, keeping rate cut expectations at bay for now.
As promised at the outset, it is instructive to recount the journey of the economy and the NIFTY50 since its inception. In 1994-95, India ranked 15th globally in GDP, at US$333bn, 1.8% of the total output; we are today the fifth largest economy in the world with an annual GDP of US$3.8trn, 3.6% of global output. The market capitalisation of NSE listed companies has seen a growth of ~17% on an annualised basis since 1994 in rupee terms. The number of companies traded on NSE at the end of 1994 was 351, which has grown to 2168 by end of 2022, an increase of more than 5x in last 29 years. These companies have raised ~Rs11trn from the markets, which today touch a bigger slice of India than ever before—India has over 7.5 crore unique investors. Regardless of the impressive achievements in the journey thus far, the scope for improvement remains, as does the opportunity, for both the economy and its reflection, the markets.