Ignore the Short-Term Challenges, Focus on the Long-Term Opportunities

Dear Investors,

GST collections rose a muted 6.5% in September to Rs 1.72 lakh crore, slowing from the record double digit growth recorded in Apr-Aug period. Also, Manufacturing PMI slipped to an 8-month low of 56.5 in Sept. While these macros may suggest that the Indian economy may have slowed marginally halfway through the fiscal year, we cannot deny that we had a super strong summer, and everyone needs some cooling off, before yet another take-off.

The festivities are around the corner and consumption is likely to rise in the second half of the current fiscal year – India is on the path to achieve a growth rate of over 7%.

September recorded new highs for the Indian Equity Market, but at the time of writing this newsletter [Oct 8], markets are down roughly 2.5% MTD. The broader market indicators have lagged, but the economic growth and liquidity is intact, and that is why bulls are in no mood to take a breather.

During the first week of October, Indian markets experienced their sharpest decline since June 2022, driven by escalating tensions in the Middle East and new derivative regulations introduced by SEBI. Additionally, muted trends in global markets and heavy foreign fund outflows are weighing on investor sentiment.

Triggered by the recent stimulus policies by the Chinese central bank, funds are shifting to cheaper Chinese stocks from expensive Indian markets. This, along with the possible increase in interest rates by the Bank of Japan due to recent political changes may impact the domestic market in India in the near term.

NEAR TERM CONCERNS:

• The Indian equity market is currently facing extreme valuations
• This elevated valuation raises concerns about the sustainability of market performance, as similar situations in the past have often led to weaker equity returns.
• The valuation gap between equities and bonds is at historically high levels, which has typically resulted in depressed equity returns over the next one to two years.

LONG TERM POSITIVES:

• The below chart underscores India’s increasing significance within the Emerging Markets (EM) benchmark highlights its long-term growth potential, despite lower FII ownership.
• Despite such strong FII outflows, markets have not corrected as it should have; this is because of stronger domestic inflows.
• India’s GDP is currently at record high, and there’s only upwards from here
• Strong Q2 business updates from companies indicate robust underlying fundamentals
• This recent correction presents a good buying opportunity in the domestic market, bolstered by encouraging Q2 business updates from companies, expectations for a dovish stance from the RBI, and attractive valuations.

 

Hence, in the long term, we continue to have faith in the India Growth Story.

While FIIs may be net sellers, a strong net inflow from foreign portfolio investors or FPI in September has turned their total secondary market investment in Indian equities positive for the calendar year so far at $4,140.3 million approximately ₹34,554 crore compared with the net outflow of $1,417 million approximately -₹11,998 crores at the end of August.

According to data from NSDL FPIs’ net equity investment in September was $6,890.5 million, including primary and secondary market transactions, their highest monthly investments since December 2023 when they had pumped $7,939 million in Indian equities.

FPIs Continued to invest even on the last day of September fetching $43 million on a net basis, despite selling pressure in the broader equity market which pulled down the benchmark indices by nearly 1.5% on the last day of September.

On the domestic macro front, the better-than-expected performance of the ruling Bhartiya Janata Party (BJP) in Haryana elections has come as a relief for investors. The festival season is likely to bring in a boost to the economy & the markets, and for all the blips that come along the way, long term investors should act wisely on leverage every opportunity in terms of investing in the right funds.

Based on our experience, we can vouch that the ongoing drawdowns are not painful ones, but opportunistic ones.

Stay informed & make wise investment decisions!

 

MARKET OUTLOOK:

Market indices appear to be holding steady, not breaking long-time support of a “blood-bath.”

This could reflect either complacency towards geopolitical risks, a sense of calm and optimism about global economic growth, or confidence that central banks will step in to provide support whenever necessary.

Nevertheless, this correction may provide a solid buying opportunity given the strong domestic fundamentals and the anticipation of favorable Q2 results.

We always strive to make investors optimistic, as this is the starting point of wealth creation through equity investments.

We also declutter investors’ concerns through objective evaluation of markets and assure you of the best investment services, backed by in-depth knowledge, driven by content, and analytics.

At PMS AIF WORLD, we understand the gravity of investment decisions, so we offer a well-informed experience and bespoke Wealth Management Services.

We are a New Age Investment Services Company, committed to delivering an analytics-driven, high-quality investing experience.

Our mission is to foster Wealth Creation and Prosperity for our clients.

We are driven by a dedication to excellence and meticulously offer the best Alpha-focused products.

Our suite of investment products spans a diverse range from listed to unlisted, encompassing Pre-IPO, Private Equity, and Venture Capital funds.

With us, you invest in the best.

JOIN US ON A JOURNEY WHERE TRADITION MEETS INNOVATION, AND WHERE THE FOCUS IS ON ALPHA.

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