Over the past few months, we have maintained that although the medium-to-long term investment case for Indian equities is constructive, the scorching flows-led rally amid weak earnings growth and rising geopolitical risk is a growing potent near-term risk to the lofty valuations of majority of stocks. Notwithstanding yet another month of record-high retail inflows into equity MFs, this risk precipitated in Oct-24.

Highlights

• Rising geopolitical risk in the Middle-East (Iran-Israel conflict), fading stimulus-driven excitement in China and rise in US bond yields ahead of US Elections outcome led to a broad-based cool-off in global equities.
• Indian equities finally saw a meaningful correction in Oct-24 (NSE A/D ratio slipped to 0.8x). Oct-24 saw record high net FII outflows (US$11.2bn), net DII inflows (US$12.8bn) and retail inflows into equities (US$5.9bn).
• 2QFY25 results have been tepid, with majority of companies reporting earnings below/in-line with analyst expectations. Tepid volume growth in consumption stocks & stress in unsecured loan books of MFIs have been key trends.
• Consumption, MNC & Energy themes were the biggest laggards in Oct-24. Over the past 3 months, only the the Services Sector has not posted losses.