Commentary on the Indian Securities Market for November 2023 - Aegon Life Insurance

By Saibal Ghosh, Chief Investment Officer, Aegon Life Insurance

The markets were in a buoyant mood in the month of November post the fed meeting as the fed was less hawkish than earlier. As the markets factored in no further rate hikes and beginning of rate cuts next year, the equity markets bounced back across the world. Nifty (up 5.5%) gave the best monthly return in the last 16 months. Midcaps and small caps performed even better to give double digit returns. The war in the middle east did not have any dampening effect on the markets as it was contained within the region. The quarterly results season were mostly in line with consensus EPS remaining largely unchanged at index level.

The CPI inflation in October fell further to 4.87% vs 5.02% in the previous month, getting closer to the RBI target of 4%. While food inflation was largely flattish month on month, the core inflation was slightly lower. The IIP growth fell to 5.8% compared to double digit growth in the previous month mainly due to subdued growth in consumer goods. However, the growth rate for the first seven months of FY24 has been a respectable 6%. GST collections continued to be strong at Rs 1.68 lakh crores, growth of 15% YoY. The GST collections in the first eight months of FY24 is up by a strong 12%.

The global situation has remained uncertain given the wars in two locations of the planet. However, with the fed becoming less hawkish, the markets were hopeful of rate cuts next year. This led the 10Y US treasury yield to fall by a steep 12% to 4.3% from about 5% last month. This further led to the dollar index also correcting by 3% to 103 levels. However, Indian Rupee continued to depreciate for the fifth consecutive week to 83.4. The slowing economic growth across the globe has dampened crude prices back to just over $80/barrel which is positive as it reduces pressure on inflation and India's external payouts.

Foreign institutional investors' flows turned positive after two months of negative flows. They bought close to 1.1 billion dollars of Indian equities in November. Domestic institutional investors (DIIs) continued to be buyers in the equity markets. Equity mutual funds continued to receive positive flows for the 32 nd month in a row. The net inflows were close to 20,000 crores with small cap and mid cap funds receiving close to 7,000 crores. It is noteworthy that Systematic Investment Plan (SIP) inflows have almost touched 17,000 crores. Large caps fund flows also turned positive for the first time since April.

While there are some concerns of growth slowdown globally, the Indian economy seems to be doing reasonably well as seen in the data. There are some state election results next month which canresult in volatility. However, the medium to long term story continues to remain robust.

The 10Y Benchmark started the month at 7.36% and ended at 7.28%. The Indian Bond Market continued to witness volatility due to liquidity concerns as the average liquidity was seen at a deficit of 1.47T. The UST drastically cooled off, after depletion in inflationary pressures and softening of the labor market, along with various comments from Fed Members calling for peaking out of rates. Though the higher-than-expected domestic GDP data for Q2 and hawkish stance from the central bank will exert some pressure on yields in the short term, the moderation in further growth and softening of inflation owing to fall in commodity prices will keep the yields poised for a quick uptick. The Indian Bond market witnessed highest inflows in past 6yrs, ahead of the Index Inclusion as FPIs bought net INR 127.2B of bonds in November, signifying Bonds to be the most attractive asset class for the upcoming year.