House View: Strong growth, mixed signals, and rising markets

The first quarter of 2024 remains as perplexing as 2023. When you look at the GDP data, #1, #2 & #5 ranked countries in terms of GDP size globally - US, China and India have been doing well beating estimates at ~3%, 5% & 8% YoY growth respectively. However, #3 & #4 - Germany & Japan have entered recession as their GDP contracted for more than two quarters in a row. When you look at PMI numbers, the Services component is growing for both developed and emerging countries. The dichotomy is with the manufacturing component that has been contracting for developed countries. When you look at the Inflation numbers, they have come off substantially compared to where they were a year back. Still, they are above target and sticky for some time.

Highlights
 

• Equity markets have been much more perplexing. Global equity markets - S&P 500, NASDAQ, CAC 40, DAX, NIKKEI. Nifty 50 etc. have all touched an all-time high in this quarter. This is at the back of expected rate cuts going forward and economic growth continuing to be alright.
• In spite of expectations of bond yields going down at the back of peak rates, the long US treasury has given negative returns. Brent Crude rose sharply over 14% in the first quarter due to various reasons such as OPEC+ member’s decision to prolong production cuts, increased demand from major oil consumers worldwide, and escalating geopolitical tensions.
• Indian Equity market gains were muted in the quarter with FIIs flows standing at USD 1.4 bn and DIIs infusing around USD 13 bn. Mid and small cap space faced heat due to expensive valuations and regulator coming out with necessary steps to moderate inflows in the category.
• As per World Bank, the world economic growth could be at 2.4%, slower than that of 2.6% in 2023. India to be standing out with 7% growth expectation in FY25 (as per RBI). Central Banks led by US Fed could start cutting rates.
• Barring FY21 (Covid-19 recovery year), Indian equity markets delivered the best returns since FY10, with the Nifty-50 rallying 29% (+27% in US$ terms), mid/small caps rallying 58%/59% and the broad market (BSE-500) clocking a gain of 38% (+36% in US$ terms).