Domestic equity markets started the new financial year on a strong foot as both the benchmark indices, the Nifty 50 and the Sensex, recorded gains of 1% each approximately. India’s strong economic growth outlook, anticipation of upbeat corporate earnings for the quarter ended Mar 2024 and the prospects of political stability following the outcome of general elections kept the underlying sentiment positive. In terms of sectoral performance, key outperformance was seen across the Metals, Power and Telecom sectors while sectors that dragged the most were IT, Healthcare and FMCG. FIIs turned net sellers in April to the tune of USD 1.03bn.

                                                  

The HSBC India Composite PMI was revised downward to 61.5 in April from a flash print of 62.2, coming after March's reading of 61.8. Still, it was the 33rd straight month of expansion in private sector activity, amid robust growth in the manufacturing and services sectors. New orders rose sharply and at one of the fastest rates since mid-2010. Meantime, goods producers led April's rise in payroll numbers, with softer growth in the service economy curbing job creation at the composite level.

                                                  

CPI inflation softened to 11-month low of 4.83%, in April, compared with 4.85% in the previous month. Food prices, however, remain stubborn at 7.9%. Vegetables (up 28.0% YoY), pulses (17.0%) and spices (8.0%) together contributed 52.0% to overall inflation in April. Fuel prices fell further to -4.24% from -3.24% which helped eased headline inflation. Clothing & footwear and housing continue to witness a mild inflation at 2-4%.Core inflation softened marginally to 3.23% from 3.25% in March. Brent prices did not pass through in April inflation prints due to ongoing general elections. April WPI rose to 1.26% from 0.53% in March. Food prices rose to 7.7% from 6.9%, non-food inflation rose to -4.4% vs -4.1%. Fuel inflation rose to 1.4% vs -0.8% while manufacturing inflation rose to -0.4% from -0.9%.

                                                  

Bond yields hardened during April following a surge in U.S. Treasury yields as stronger-than-expected manufacturing data of Mar 2024 in the U.S. trimmed rate-cut expectations by the U.S. Federal Reserve. Yields hardened further after the RBI maintained key lending rates and stance as widely expected in its Apr 2024 monetary policy review. The benchmark 10 year G-Sec yield hardened 15 bps to 7.20% from 7.05% in March. Corporate bond spreads contracted across maturities due to low supply of state development loans.

                                             

The first half of May has seen increased volatility in the market with a bout of profit booking combined with some jitters around the expected outcome of the general assembly elections in India. Markets seemed to have baked in an optimistic scenario in favour of the ruling government and as the election has gone through different phases of voting, the earlier enthusiasm seems to have been curbed a little. Overall, though, corporate earnings have kept pace with the previous quarters and there do not seem to be any imminent negative triggers for the markets.

 

Regards,

Investment team

Pramerica Life Insurance