Market Notes 01.12.24
Growth-LargeCapsorMidSmallCaps-Global Markets-EarningsDigest.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
Growth.
The only thing that matters to markets is growth. Markets are hungry for growth, whether it is stocks, sectors or countries. If there is growth, the valuations will sustain, even expand and if the growth slows down or God forbid disappear, the de-rating/punishment is severe, depending on how the markets perceive the situation.
With this backdrop, how should one look at the 5.4% GDP growth reported on Friday, down from the 7% odd we saw in previous quarters and much below even what the RBI predicted. The reasons for this de-growth are well known but let me list out few of big ones for clarity:
General global slowdown for all countries. US, China both slowing down. Europe and Japan have been a mess for a while. So its natural India sees some impact of this global slowdown on our exports.
Locally it has been an election year which means the biggest driver for our growth over the last few years, government spending has considerably slowed down. Even though it has been the same government with minimal changes in the ministry, the new coalition regime has taken its toll in the speed of decision making and spends. Also a lot of money is going out into election doles, whether we like it or not - this again impacts the government spending. Private capex has picked up for sure, but not enough to offset the sharp reduction in government spending. This has been the biggest factor.
RBI has been quite hawkish and have kept the rates quite high and are not in the cutting mode even thought the rest of the developed markets have started their cutting cycle. Blame this on the inflation in food prices we saw over the last quarter.
So given this context, we have global, fiscal as well as monetary tightening - all three acting as headwinds for growth together. This has impacted markets which anyway were looking for a reason to correct given the heady valuations and a great last few years.
What do i think about the market now? I have a bit of a contra view here - disclaimer applies as always :)
The slowdown was not a surprise. It was been spoken about quite vocally for the last few months and this GDP print could act as sell the rumour and buy the news. I think this GDP print should force both the government and the RBI to push the pedal harder for H2 and the markets being an anticipation machine should begin to discount that. As soon as the GDP data came out, the 10 year yield corrected sharply - signally that the RBI will also be forced to act sooner than later. This is ofcourse just conjecture, let’s see how things pan out.
Overall, i think the India bull market is very much alive and this is a natural correction. I may be wrong.
Large Caps vs MidSmall Caps.
One more thing where i have fairly strong views is that - this bull market is all about the broader economy. It is the new categories and new sectors like power, manufacturing, AI, CDMO etc that’s driving the earnings and consequently markets. The typical large caps like private banks, consumption etc are lagging big time both in growth and stock prices. I expect this to continue throughout this cycle. So active should continue to out-perform passive in this cycle.
Global Markets.
The summary of what’s driving the entire global market is: TRUMP. May be ELON MUSK too.
Given the state of US debt not sure how much they can actually do but one thing is certain - they have brought in a burst of optimism to the US markets and even the crypto markets. There is a risk-on in the US right now. Big Tech is possibly topping out with this event, making way for the broader market to perform. AI hopes and spends are the only thing keeping the Big Tech trade alive. Those who can participate in the US markets will also see a similar pattern play out like i mentioned for India i.e. active > passive. So far if one just held the NASDAQ and sat on it, very few active managers could beat that. But going ahead that may change and it may be what they call a “stock-picker’s market”.
Earnings Digest.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. We may own positions in all stocks, sectors and indices discussed and can exit them without notice. You will very likely lose money if you use any information in this post without your own due-diligence.
The growth slowdown that we spoke about was quite apparent in the Q2 earnings. However certain pockets continued to do well, especially those that are not directly dependent on the government spends. Some earnings that i liked:
Shaily Engg
Car Trade
Garware Hi Tech (doing well last few quarters)
Supriya Lifesciences
Manorama
Garware Fibres
Kfin
Deep Industries
Cams
BSE (doing well last few quarters)
Strides
Anup Engg
Care Ratings
Balu Forge
Motilal Oswal
Nuvama
Of course this is just a partial list. There were many more names which did really well in term of earnings. Like i say every time, these are NOT at all recommendations but just examples for you to analyse.
To conclude, i would say that i am much more bullish now than i was during my last update, a quarter back, when i had concluded that we are in for a tough market environment. I think the pain to some extent has played out, the narrative is broadly negative, growth has slowed down and it’s all over the news, inflation is at the peak. Markets should anticipate that things would get better from here, let’s hope they do.