Direct Equities: Barring an Oil Shock, Market Likely to Exhibit Resilience

Late rally in Indian equities camouflages a notable intra month correction in small/mid caps March saw record high DII inflows (US 6 8 bn) and robust FII inflows (US 4 2 bn) into equities. Macro narrative for Indian equities remains positive strong GDP growth, manageable inflation, political stability and larger share of FPI flows as India’s weightage in global benchmark indices rises. Hopes of a “soft landing” in the United States economy and expectations of rate cuts by the Federal Reserve boosted US and European markets, leading to strong gains in the S&P 500 and Stoxx 600, while emerging markets rose only modestly.

Highlight

• In India, despite a late rally supported by strong domestic and foreign investor inflows, small- and mid-cap stocks saw a sharp mid-month correction and underperformed larger stocks, with sectors like auto, metals, and financials gaining while IT and media lagged.
• Barring an oil shock, there is reasonable probability of equities remaining resilient till Election results (early June) in this backdrop; we think investors should look to rationalize holdings (more so in mid/small cap space).
• Indian benchmark indices underperformed their global counterparts in the month gone by. In FY24 however, the India was the clear winner. BSE500 outperformed the MSCI EM index by a mile over the last 2-5 years.
• Nifty IT and media were the weakest sector indices in Mar 24, while auto and metal posted notable gains. In FY24, gains have been led by Realty, Auto and PSU banks whereas private banks, media and FMCG sectors have lagged relatively.
• Sectors Unchanged from last month - BFSI space is our top pick considering reasonable valuations. Selectively favor stocks in logistics, consumption and auto. On the sidelines, in case of IT Capital Goods stocks on account of rich valuations.