Navigating Through Turbulent Times

The once-smooth ride of the Indian equity market is now showing signs of turbulence. Several concerning factors have emerged as obstacles to this steady ascent. Investor sentiment has taken a hit due to the international surge in crude oil prices. Since we rely heavily on crude oil imports, this development could exert additional pressure on our current account deficit and inflation. Another source of concern is the strengthening of the US dollar index, which typically has an inverse relationship with risk assets like commodities and emerging market equities. [EasyDNNnews:PaidContentStart]

Additionally, the US Federal Reserve’s communication about keeping interest rates high for an extended period has contributed to rising bond yields. The US Treasury yields recently reached a 16-year high of 4.70 per cent, the highest since 2007, following better-than-expected manufacturing data that bolstered confidence in the US economy. The convergence of these factors has prompted foreign investors to withdraw from the Indian equity market. 

September marked the first month since February in which foreign investors, on a net basis, divested from domestic equities, amounting to approximately Rs 14,768 crore in September 2023. This shift follows six consecutive months, from March to August, during which they infused Rs 1.74 lakh crore into the Indian markets. These developments certainly call for caution among short-term investors. 

However, against the backdrop of a challenging global environment, the Indian economy is poised to maintain its growth trajectory and lead global economic expansion. Even when considering rainfall deficit of 11 per cent during the start of September, it has since reduced to 6 per cent by the end of the month. The World Bank has recently reaffirmed India’s GDP growth numbers, which remain the second-highest among G20 countries, nearly double the average for emerging market economies, with a projected GDP growth rate of 6.3 per cent for the financial year 2023-24.

This resilience is underpinned by robust domestic demand, substantial public infrastructure investments, and a strengthening financial sector. Recent economic data continues to reflect the vitality of the Indian economy. In September, the India Manufacturing Purchasing Managers’ Index stood at 57.5. Moreover, GST collections recorded an impressive 10.2 per cent YoY growth, reaching Rs 1.63 lakh crore in September 2023. On an average, monthly collections amounted to Rs 1.7 lakh crore in 1HFY24 compared to an average of Rs 1.5 lakh crore in 1HFY23. 

While the valuation of Indian equities may appear relatively elevated compared to other emerging economies, it remains far from exorbitant or alarming levels when benchmarked against its historical averages. One of the most widely employed measures of valuation within the investment community is the price-to-earnings (PE) ratio. In an in-depth feature, we have delved into this critical metric to unravel why it holds such widespread significance. 

Furthermore, we explore the precautions that investors should be mindful of when employing the PE ratio to assess or compare stocks. In another compelling narrative, we endeavour to decipher the effectiveness of momentum investment strategies in the Indian context. This comprehensive story scrutinises the historical performance of the momentum index and extends its application to the top 500 companies. Our analysis reveals that while this approach carries a higher degree of risk compared to the frontline index, it is substantiated by the potential for superior returns. We trust that you will find these enlightening stories engaging and informative. We eagerly await your valuable feedback and insights.

RAJESH V PADODE
Managing Director & Editor

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]