Friday, 28 June: Market Watch + Insights

June 28, 2024 • Estimated Reading Time: 9 minutes

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Dear Otter Reader 👋 

Welcome back to another Friday’s market watch edition with 🦦 Otter by CapitalVia.

These days nothing seems to put a dent in our Indian spirit. We don’t let FIIs playing hide-and-seek crash our homegrown markets or the political plays dwindle our faith in the Indian economy. And… we certainly didn’t let Guyanese rains stop us from winning the 🏏 T20 World Cup semi-finals against England! 👏 👏 

Speaking of big wins, India will have its first-ever India House at the Paris Olympics! 🇫🇷 Big thanks to Reliance Foundation and the Indian Olympic Association (IOA) for making that happen.

Before you switch gears to cheer on India in the finals against South Africa tomorrow, let's catch you up on the key market movers this week!

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STOCK MARKET TEMP CHECK

The Indian equity market continues to show resilience amid global uncertainties. But, what’s keeping market volatility in check during FII outflows? The great Indian Investor!

  • Domestic Institutions Overtake Foreign Investors: Domestic institutional investors (DIIs) now own 18.4% of NSE-listed stocks, 🏃‍♂️ surpassing foreign institutional investors (FIIs) at 17.9%.

  • Retail Investor Boom: 💥 Individual investors now own 9.5% of the market, up from previous years. Demat accounts have surged to over 15 crore as of March 2024.

  • Trading Patterns: Again, individual traders dominate trading activity, accounting for 📊 35.5% of traded volume in the cash market, followed by proprietary traders at 23.1% and foreign investors at 14.8%.

  • Mutual Fund Inflows: 💸 Equity mutual funds saw record inflows of ₹34,697 crore in May, thanks to strong domestic investor confidence.

  • Tier-2 Cities Leading Growth: While the top 5 cities still account for 52% of mutual fund AUM, 🤩 tier-2 cities like Gandhinagar, Dhanbad, Bilaspur, and Panvel have seen AUM growth rates of over 40% annually since 2020.

Otter Insight: The increasing domestic participation, especially from smaller cities, is creating a more stable and resilient market. This trend could potentially reduce the impact of global events on Indian markets in the long run.

MID AND SMALL CAPS SURGE

  • BSE Midcap and Smallcap indices have 📈 surged nearly 92% each since April last year, significantly outperforming the Sensex and Nifty.

  • In June alone, the BSE Midcap index has gained 7.4%, its biggest jump since November 2023, while the BSE Smallcap index has gained 10.2%, its highest monthly gain since February 2021.

Analyst View: 🐂 Bullish momentum expected to persist despite valuation warnings

UNDERPERFORMANCE OF ACTIVE FUNDS

  1. According to a recent study, nearly 75% of equity assets have underperformed the Nifty benchmark over a 5-year rolling period from 2014 to 2024.

  2. 100% of large-cap funds, focused funds, value funds, dividend yield funds, and contra funds have underperformed the Nifty.

  3. The findings suggest that outperforming the Nifty is increasingly difficult, potentially ➡️ driving more investors towards passive index funds.

YES BANK OVERHAUL

Yes Bank is undergoing significant restructuring:

  • Layoffs Initiated: The bank has commenced layoffs 👔 affecting 500 employees as part of a restructuring effort to enhance operational efficiency.

  • Digitalization Focus: The bank also strives to reduce costs by 📲 focusing on digital banking and minimizing manual processes.

  • Fundraising Plans: Yes Bank's Board of Directors has approved 💰️ raising funds through debt securities in Indian and foreign currencies.

Trend Analysis: This restructuring aligns with the broader trend of digitalization in the banking sector. Underneath these efforts, what’s also quite apparent are the challenges faced by some private sector banks in maintaining profitability amid increasing competition and regulatory pressures.

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HARD ON CREDIT CARD?

The Reserve Bank of India (RBI) is tightening regulations on credit cards:

  1. Growth Moderation: Credit card issuance growth and spending growth moderated in May, with 💳️ new cards added totalling just 7.6 lakhs compared to 12.3 lakhs in the same month last year.

  2. Regulatory Actions: The RBI has imposed bans on credit card issuance as penalties on select banks in recent months.

  3. Spending Patterns: While 🛍️ overall spending is growing slower, the volume of transactions remains high, indicating a shift towards more frequent but smaller transactions.

  4. UPI Integration: The integration of credit cards with UPI may have contributed to the high transaction volumes.

Otter Insight: Expect more cautious credit card sector growth as RBI prioritizes financial stability and focuses on maintaining financial stability and preventing excessive consumer leverage.

AVIATION GALORE

The Indian aviation sector is experiencing a takeoff 🛫 unlike any other, fueled by developments that promise not just sky-high growth but also a surge in job opportunities:

  • US-India Collaboration Takes Off: The US Trade and Development Agency's grant for an integrated aviation hub at ✈️ Hisar Airport in Haryana is a 🤝 powerful partnership in the making, which will pave the way for considerable job creation.

  • Guwahati Gears Up for Millions: The Adani Group's massive expansion of Lokpriya Gopinath Bordoloi International Airport in Guwahati, with its 13.1 million passenger capacity, will position the region as a major aviation hub and unlock new employment opportunities.

  • Adani Bets Big on Indian Skies: Adani Enterprises' planned ₹1.75 lakh crores investment in airports over the next decade is a clear vote of confidence in the aviation sector's long-term potential.

Trend Spotting: India is growing its focus on improving aviation infrastructure and increasing its global presence in aviation, especially with massive investments planned by private players like Adani.

ECONOMIC INDICATORS

Bright Spots:

  • External Debt Ratio Shrinks: 📉 India's external debt ratio improved to 18.7% of GDP in FY24, at a 13-year low. 🥳 

  • Direct Tax Collections Rise: Net direct tax collections are up nearly 21% year-on-year to ₹4.63 lakh crores from April 1 to June 17, 2024, indicating 😄 strong economic activity and improved tax compliance.

Challenges to Address:

  • Project Cost Overruns: The 20.7% cost overrun in central government projects 😰 valued over ₹150 crore raises concerns about project management and resource allocation.

  • Remittance Growth Slowdown: Reduced inflows from the Gulf have significantly slowed down India-bound remittances 🔻 (3.7% growth expected from 7.5% a year back). This could impact foreign currency inflows and domestic spending.

Consumer Crossroads:

  • China Cools Down: A 7% decline in sales during China's "618" shopping festival indicates weakening consumer confidence, 🌎️ raising concerns about global economic growth.

  • US Spends On: In contrast, US consumers remain resilient, prioritizing experiences over goods, which could offer a bright spot for specific sectors.

Looming Challenges:

  • Food Fight Fears: Agricultural commodity traders are warning of potential "food wars" 🌾 due to geopolitical tensions and climate change with the fragility of global food supplies.

  • Copper Concerns: 🔴 A copper surplus in China likely suggests a slowdown in industrial demand, potentially impacting global commodity prices.

INDIA'S ECONOMIC ENGINE: THE BIG PICTURE

Domestic Strengths Power Growth:

  • Insulated Growth: Fueled by a domestic investment boom in equities, mutual funds, and aviation, India may be better equipped to weather global economic storms like China's slowdown

  • Digital Revolution: The Yes Bank restructuring, rising credit card usage, and e-commerce boom point to a digital transformation reshaping various sectors, fueling growth and efficiency.

  • Connecting the Nation: A surge in aviation infrastructure investment, alongside other initiatives, prioritizes strengthening domestic and international connections, a key driver of economic activity.

Building a Strong Foundation:

  • Financial Stability First: The RBI's proactive approach to regulating credit cards and the broader financial sector lays the groundwork for a more stable financial system, creating a solid base for long-term economic growth.

Adapting to the Global Landscape:

  • Passive Investing on the Rise: The underperformance of actively managed funds may lead to a shift towards passive index investing, potentially altering the Indian mutual fund industry.

  • Navigating Global Challenges: While India's domestic strength is promising, global issues like China's consumption slowdown and food security concerns demand vigilance and strategic responses.

Your Action Items:

  1. Review your investment strategy in light of the shift toward passive funds

  2. Consider opportunities in the growing aviation sector

  3. Stay informed on RBI regulations impacting credit and banking

As always, we encourage you to stay informed and make well-considered financial decisions. Remember, while we strive for accuracy, it's always wise to consult with financial professionals for personalized advice.

Stay curious, stay invested, and most importantly, stay true to yourself.

Your Trusted Investing Partner,

Otter by CapitalVia

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