Direct Equities: Global shifts, local conviction

Following the Republican clean sweep in US Elections, America First & Trump Tariffs shaped a broad-based rally US equity, sustained uptick in Dollar Index (DXY) and sell-off in EM equities (China, Korea & SE Asia) in Nov-24. MSCI World rose ~4% (led by US as S&P-500 gained >3%), MSCI EM slipped ~5%. We maintain that the medium-to-long term investment case for Indian equities remains positive (3-yr Nifty-50/BSE-500 CAGR of 12-13%). In Dec-24 though, we expect benchmark indices to be in consolidation mode (positive underlying bias) amid increased volatility. Monetary policy outcomes, geopolitics (incl. tariff wars, Trump rhetoric), DXY trend (US$ strength) and implied growth in 3QFY25e earnings forecast will likely provide cues for sentiment. 

Highlights

• India saw the highest outflows amongst EMs over the past 3 months. South Korea and India are clear preferred destinations among EMs when gauged on a 12-month basis.
• After correcting ~4% intra-month, benchmark indices recovered lost ground (NSE A/D ratio was ~1.1x, small-caps outperformed). Net FII outflows abated to US$2.6bn vs. US$11.2bn in Oct-24
• Sectors: (1) Pvt. Banks & NBFCs still offer favorable risk-reward balance. (2) Select stocks in consumption/realty-proxy/logistics space appear reasonably valued. (3) Valuations of pharma, IT and Capital Goods / Industrials keep us on the sidelines.
• IT, Media, Realty, and PSU Banks posted gains in Nov-24 | Over the past 3 months, only BFSI and IT sector indices eked out gains whereas Nifty Auto was the notable laggard.