The index is currently trading at 149 per cent of its historical P/B valuation, surpassing its previous peak of 125 per cent made in 2020-21.
The improvement in the performance of actively managed mutual fund (MF) schemes is acting as a key tailwind for the nearly Rs 50 trillion industry, Kotak Institutional Equities (KIE) said in a report. The report adds that the two largest listed asset management companies (AMCs) - HDFC and Nippon India - are likely to be the biggest beneficiaries. "The industry has a solid track record of delivering alpha on 10-year returns (70-80 per cent of assets under management (AUM) beat the benchmark), with shorter duration performance also on an upswing.
The cash pile within smallcap mutual fund (MF) schemes has grown over the past few months amid a relentless rally in stocks in this space. While fund managers usually don't make cash calls, incessant inflows and valuation discomfort have forced their hand. At the end of January, the top 10 schemes had over Rs 12,160 crore in cash, compared to Rs 8,700 crore in August 2023.
Notwithstanding the recent sharp decline in the stocks of public sector companies, analysts at Jefferies remain bullish on this segment. State Bank of India, Coal India, and NTPC are their top picks in this space, they said in a recent note. The public sector undertaking (PSU) or state-owned enterprise (SOE) index, with a 70-percentage-point outperformance versus the National Stock Exchange Nifty50 over the past 12 months, comes after a decade of underperformance before 2020.
Retail investors now own a bigger slice of smallcap companies than at the start of 2023-24 (FY24), underscoring their growing conviction about investing in this red-hot space. Data from Capitaline shows mutual funds' (MFs') average holding in the National Stock Exchange Nifty Smallcap 250 rising to 9.26 per cent from 8.67 per cent during the first six months of FY24, with the number of companies with over 20 per cent MF holdings increasing from 24 to 28. In comparison, MF holdings in Nifty50 companies have gone up only marginally, from 9.67 per cent to 9.75 per cent.
The stock of the country's largest passenger vehicle maker, Maruti Suzuki India (MSIL), has been hitting successive all-time highs over the past three trading sessions. The rally in the scrip has helped it notch over a 21 per cent gain since the start of February, outperforming the National Stock Exchange Nifty Auto Index. The gains for the leader of small passenger cars have been more recent, as the company still trails the Nifty Auto over one- and two-year periods.
The US market has been a standout performer this year, with the benchmark Standard and Poor's 500 (or simply the S&P 500) gaining over 16 per cent during the first half of calendar year 2023 (CY23) in what was its best first-half show since 2019. By comparison, India's National Stock Exchange Nifty 500 has gained 6.4 per cent. On the surface, it appears that the US markets have done exceedingly well. However, a deeper analysis reveals the gains in the domestic market to be more well-spread.
Boom, bust or a bit of both: as the jury bides time before ruling on the US 'recession', the economy's vital signs at a perplexing time of high-interest rates, still-punishing inflation, and surprisingly strong economic gains are a study of a growing debate over whether the world's largest economy is barrelling into a new downturn. With the US Federal Reserve's (Fed's) inflation fighters attempting the risky pursuit of 'pillow-soft landings' and its economy sending out mixed signals, if there is indeed a recession, it could spell trouble for domestic equities and corporate earnings growth.
'While Indian markets are indeed not inexpensive, the valuations of largecap stocks are still a considerable distance from being overstretched.'
'We emphasise the importance of not basing investment decisions solely on electoral outcomes.' 'Instead, focusing on investing in high-quality businesses capable of prospering regardless of the political landscape is paramount.'
Nearly 90 per cent of the stocks comprising the National Stock Exchange Nifty 500 Index and 49 of the 50 stocks that make up the Nifty50 are trading above their respective 200-day moving averages (DMAs). The 200-DMA is considered one of the most relevant trend indicators by investors and traders. They believe that stocks and indices trading above this key level exhibit strength and are likely to rally, while those trading below this level are viewed as bearish, with the stock/index expected to see a selloff.
Notwithstanding concerns about lofty valuations, smallcaps recorded their most significant monthly gain in nearly three years in November. The National Stock Exchange Nifty Smallcap 100 finished the month with a 12 per cent gain, the most since February 2021 when it rose by 12.2 per cent. After declining by 4.1 per cent in the preceding month, the Nifty Midcap 100 rose by 10.4 per cent, the most since July 2022.
'We are cautious only on sub-sectors that have seen massive melt-up during the past six months.'
Fund managers of large-cap and equity-linked saving schemes (ELSS) have demonstrated a marked improvement in their performance over the past year, according to the latest SPIVA (S&P Indices Versus Active) report released by S&P Dow Jones Indices. In the one-year period ending June 2023, 17 per cent of active large-cap schemes outperformed the S&P BSE 100, compared to just 9 per cent at the end of June 2022. In the case of ELSS, there was a sharp improvement in performance, with 66 per cent of active schemes delivering better returns than the benchmark S&P BSE 200.
After pulling out $17 billion in calendar year 2022, foreign portfolio investors (FPIs) have pumped $7.3 billion back into equity markets so far this year. The turnaround in foreign flows has helped domestic markets exceed the all-time highs chalked up in December 2022 and bounced back more than 10 per cent from this year's lows. However, a big nugget of FPI inflows seen this year could be off the back of two factors: exchange-traded funds (ETFs) and block deals.
Investors should view any bounce-back in bank stocks as an opportunity to exit the pack, analysts suggested, as the worst may not be over yet. The recent quarterly results of HDFC Bank and Axis Bank disappointed the Street, triggering a marketwide selloff by foreign institutional investors, especially in banking counters. While HDFC Bank, which was the anchor for the market correction during the past week, ended 2 per cent higher amid short covering on Wednesday, Axis Bank's shares settled 3 per cent lower.
Brokerages believe that the Bharatiya Janata Party's (BJP's) stronger-than-expected showing in state elections reduces political risks for the domestic markets going into 2024. However, after the short-term excitement, the focus will soon shift to earnings, global liquidity conditions, and the interest rate trajectory. "BJP's win in the three state elections is much better than what exit polls suggested and reinforces the consensus expectations of a Modi win in the 2024 national elections with a greater likelihood of 300+ seats for the BJP.
With the Nifty50 surging past the 20,000 mark, the markets are experiencing a spate of initial public offerings (IPOs) with four issues set to raise over Rs 4,673 crore this week. Another quartet, cumulatively worth Rs 3,000 crore, is expected to launch next week. Companies like RR Kabel, SAMHI Hotels, Zaggle Prepaid Ocean Services, and Yatra Online are set to hit the primary market this week, while Signature Global, Updater Services, Sai Silks (Kalamandir), and Vaibhav Jewellers are slated for next week. This flurry of activity is driven by multiple factors including buoyant market conditions, increased demand for IPOs, and specific rule on the disclosure of quarterly financials.
Even as banks and finance companies are reporting record-high earnings, their weighting in the benchmark National Stock Exchange Nifty50 Index has seen a downward trajectory. Investors expect a stronger performance from other sectors in the new year. Currently, banking, financial services and insurance (BFSI) companies collectively hold a weighting of 34.5 per cent, down from 36.7 per cent at the end of December 2022 and a record high of 40.6 per cent at the end of December 2019. This represents the sector's lowest weighting in the index since December 2021 when it stood at 33.7 per cent.
Equity markets rallied after softer-than-expected inflation data in the US and UK rekindled hopes of the end of the rate-hiking cycle by major central banks. The soft inflation reading drove down bond yields and the US dollar, whetting the appetite for risky assets. The 10-year US bond yield fell below 4.5 per cent after topping 5 per cent less than a month ago.
Following the sharp run in markets, valuations across the board have become elevated. The National Stock Exchange Nifty50 Index now trades at a 12-month trailing price-to-earnings (P/E) multiple of 24.3 times, 18 per cent higher than this year's low of 20.5 times. The valuation expansion in the broader markets has been sharper.
'Focus on 19,400/64,900 as the key resistance levels for the Nifty/Sensex.'
Riding the wave of the equity market, the mutual fund (MF) industry experienced double-digit growth in Samvat 2079, concluding the Hindu calendar year close to the Rs 50 trillion assets under management milestone. After a subdued 6 per cent growth in Samvat 2078, the industry's assets surged over 18 per cent last year to Rs 46.7 trillion. Industry players anticipate that Samvat 2080 will also be a fruitful year for the asset management industry, given the strong inflows from retail investors, particularly through the systematic investment plan route.
'Historically, the markets tend to perform well during election years as governments aim to increase spending and call attention to growth.'
Stocks of public sector undertakings (PSUs) have been on fire in the past year as investors cheered an improvement in key operating metrics and embraced counters of these state-owned enterprises, analysts suggest. The S&P BSE PSU Index has gained over 90 per cent in the past year, rising much higher than the S&P BSE Sensex, which has rose nearly 19 per cent during this period, according to ACE Equity data. The BSE PSU Index, reports show, has delivered a compound annual growth rate (CAGR) of 28 per cent (including dividends reinvestments) over five years and risen by almost 60 per cent in the past year.
The benchmark indices are set to end their five-month gaining streak, but the market breadth continues to hold strong So far this month, stocks gaining have outnumbered those declining, a sign that the bulls still have the upper hand, even as the pullback in the S&P BSE Sensex and the National Stock Exchange Nifty indicates otherwise. On the BSE, 2,126 stocks have advanced and 1,955 have declined in August, translating into an advance/decline ratio (ADR) of 1.1.
Wall Street-correlated stock markets are facing the risk of correction, as Christopher Wood, the global head of equity strategy at Jefferies, conveys to investors in his latest edition of GREED & fear. Rising crude oil prices, which are nearing $100 a barrel (Brent), pose a threat to the global central bank's battle against inflation and have led to a re-evaluation of its exposure to Indian stocks. "The potential for more US Federal Reserve (Fed) rate hikes, combined with the risk that monetary tightening finally bites as regards the economy, remains a risk for Wall Street-correlated world stock markets. "There is also the oil factor. This is why GREED & fear continues to believe the pain trade is down. "Areas in Asia, such as Indian midcaps, which have already done very well, are at obvious risk of some profit-taking," writes Wood.
The net inflows into active equity mutual fund (MF) schemes registered more than a twofold month-on-month rise in August, crossing Rs 20,000 crore, the highest in five months. This rise in net inflows was boosted by an 18 per cent growth in gross investments, driven by a record Rs 15,800 crore inflow through the systematic investment plan (SIP) route and Rs 5,000 crore collected by seven new fund offers (NFOs) in the active equity space, reveals data released by the Association of Mutual Funds in India (Amfi). Moreover, redemptions moderated in August, declining by 19 per cent to Rs 24,580 crore, after staying elevated in the previous three months owing to profit booking.
Mutual funds (MFs) have lined up information technology (IT) funds, indicating that technology stocks are back on fund managers' radar after a hiatus. Over the past 18 months, stock prices for companies in the software space have either corrected or remained subdued. Fund houses have launched five IT-based sectoral funds in the past three months, with three of them taking the passive route.
Stocks of small- and mid-cap companies continued to gain ground in July, notwithstanding analysts sounding caution on these two market segments given the sharp run thus far in calendar year 2023 (CY23). Sanjeev Prasad, co-head of Kotak Institutional Equities, in a note co-authored with Anindya Bhowmik and Sunita Baldawa in June-end, had cautioned against the sharp run in small- and mid-caps. "We do not see any particular reason for the excitement in small- and mid-cap stocks.
Morgan Stanley has increased the target prices of certain information technology (IT) stocks by as much as 29 per cent, anticipating an improvement in earnings in the near future. Within the IT and engineering research and development (ER&D) services sector, it is now more optimistic about growth and margin estimates for 2024-25 (FY25).
With sentiment for the automotive (auto) sector turning positive, stocks of two-wheeler auto majors have been hitting their 52-week highs. Hero MotoCorp, Bajaj Auto, TVS Motor Company, and Eicher Motors recently reached their yearly highs on strong sales in the festival season and the expectation of faster growth rates ahead. Since the start of this month, listed two-wheeler majors have delivered returns in the 12-17 per cent range, compared to the 7 per cent gains for the S&P BSE Auto Index and 3 per cent for the benchmark S&P BSE Sensex.
With Housing Development Finance Corporation's (HDFC's) merger with HDFC Bank becoming effective on July 1, the merged entity is set to become the top weight in the benchmarks S&P BSE Sensex and the National Stock Exchange Nifty indices, dislodging the country's most valuable company, Reliance Industries (RIL), from its perch. HDFC will stop trading after July 13. At present, RIL has a weighting of close to 12 per cent in the Sensex and 10.3 per cent in the broad-based Nifty. Meanwhile, HDFC Bank and HDFC have weights of 9.9 per cent and 6.8 per cent in the Sensex and 8.8 per cent and 6 per cent in the Nifty, respectively.
While the four largest listed paint companies have seen marginal negative returns, the S&P BSE Fast Moving Consumer Goods (FMCG) and the National Stock Exchange Nifty FMCG indices have delivered a solid 16 per cent return during the same period. Initially, volume growth and reduced costs bolstered the sector's sentiment, but brokerages have grown cautious due to increased competitive pressures.
'The risk is in not being invested and missing out on an upmove.'
The sharp rally in the broader markets has propelled India's market capitalisation (m-cap) to a new high. The combined m-cap of all BSE-listed firms rose to Rs 291.9 trillion in intraday trade on Thursday before settling lower at Rs 290.9 trillion. The previous record was on December 14, 2022, at Rs 291.3 trillion.
Gold burnished its image as the go-to asset class during turbulent times. However, investors seemed to have missed the bus. Net inflows into gold exchange-traded funds (ETFs) plunged to a four-year low of Rs 653 crore in 2022-23 (FY23), even as gold emerged as the top-performing asset class.
Automotive (auto) and auto ancillary stocks have been in the fast lane thus far in 2023-24 (FY24), with the National Stock Exchange Nifty Auto Index surging nearly 27 per cent, outperforming the Nifty50, which has gained roughly 11 per cent during this period. The top-gear performance of auto stocks at the bourses, according to A K Prabhakar, head of research at IDBI Capital, has been triggered by the premiumisation of products across vehicle manufacturers, which has seen vehicle sales remaining relatively stable. "It is not about higher sales figures now, but about premiumisation.
Over the past year, the National Stock Exchange Nifty FMCG Index, which tracks the market capitalisation of the top 15 companies in the fast-moving consumer goods (FMCG) sector, has surged by 17.3 per cent. In contrast, the Nifty50, a broader market index, has witnessed an 8.8 per cent increase during the same period. The FMCG stocks have also been rally leaders in the current calendar year.
'The market should maintain optimism on the back of range-bound oil prices, a robust fiscal balance sheet, a better-than-expected monsoon, and moderating inflation.'
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