Health of Wealth – January 2024

1. A look at what the Interim Budget has in store

One of the main priorities of the interim Budget 2024 is fiscal consolidation with moderation in CapEx spending.

IMPACT: NEUTRAL

The interim budget 2024 has a focus on maintaining fiscal consolidation and continued CapEx however, there is moderation in YoY uptick in CapEx spending. Continuity in Tax laws is another notable positive.

Capex Outlay has been increased by 11% (comparatively lesser than PY’s 30%). The total budget expenditure has also been increased by only 6% YoY growth and the Fiscal deficit target has been improved to 5.1% of GDP in FY25. These are the data indicating the intention of the government to reduce the CapEx-led stimulus of the post-COVID period.

The reduction in borrowing targets and fiscal consolidation favours a rally in bond markets.

To sum it up, this is a vote on account, and we need to wait for the upcoming budget in July 2024 post-new government formation. As of now, Interim budget announcements indicate fiscal consolidation and continuity in tax laws.

2. A positive move from the General Insurance Council

GI Council launches a ‘Cashless Everywhere’ facility across all hospitals in India.

IMPACT: POSITIVE

The “Cashless Everywhere” initiative has been announced by the General Insurance Council after consulting with general and health insurance companies.

Currently, during the time of hospitalization ‘the Cash-less facility’ is available only at hospitals where the respective insurance company has an agreement or tie-ups.

However, policyholders will be able to receive treatment in any hospital of their choice, under the ‘Cashless Everywhere’ initiative and a cashless facility will be made available even if the hospital is not in the network of the Insurance company. We need to wait for further guidelines for each insurer about its implementation.

3. Earnings review of Nifty50 companies in Q3 FY 24

Results of 33 Cos. Out of Nifty50 Cos. are declared and most of them are meeting/beating expectations.

IMPACT: POSITIVE

As of 1st February 2024, 33 Nifty50 companies have announced their Q3 FY 24 results. These companies constitute 74% of the estimated PAT for the Nifty Universe, 49 % of India's market capitalization, 77% of weightage in the Nifty 50 Index.

33 Nifty companies have reported sales, EBITDA, and PAT growth of 6%, 15% and 21% YoY versus estimates of 7%, 14% and 20% respectively. Of these, 9 companies have surpassed profit expectations, 8 missed and the remaining 16 are in line.

The earnings of the 33 Nifty companies that have declared results so far jumped 21 percent YoY, propelled by HDFC Bank, Tata Steel, ICICI Bank, JSW Steel, and Reliance Industries. These five companies contributed 57 percent to the incremental YoY accretion in earnings. Conversely, Tech Mahindra, Infosys, and Wipro contributed adversely to Nifty earnings.

With these results, there is continuity in earnings growth, especially in large caps. The sustainability of earnings is key monitorable for market trajectory.

4. Resilient Indian stock market despite FII outflows

FII sell Indian equities to the tune of Rs. 25,744 crores in Jan 2024.

IMPACT: POSITIVE

The FII’s are offloading their shares from the Indian stock market, pulling out Rs.25,744 crores from the Indian exchanges. This is the highest monthly outflow in the last 12 months. In fact, the highest outflow in Asia, was in January 2024.

A few major Indian banks reporting disappointing corporate earnings for the December quarter, concerns relating to the high valuation of domestic equities and increasing US treasury yields, can be the factors fueling FII’s to sell Indian equities.

Alongside, the uncertainty of an interest rate cut by the US Fed can also be a reason. However, in recent market developments, domestic participation has increased the depth of the markets. Despite the astonishing outflow numbers, the Indian markets have shown resilience and reached all-time highs with the support of robust DII and retail participation.

5. An upsurge in India’s manufacturing and services sector PMI in Jan 2024

The manufacturing and services sector PMI growth in India reached 4 & 6 months peak respectively.

IMPACT: POSITIVE

The manufacturing sector PMI growth in India reached 56.5 in January, the highest increase in the past four months. In the Purchasing Managers’ Index (PMI) context, a score above 50 is a sign of expansion, and a score below 50 is a sign of contraction. Currently, as per S&P Global, new orders for manufacturers in India increased the most in January in four months, and the export orders have increased the most since October 2023. On the other hand, India’s services activity surged up to a six-month high in January, reaching 61.8. High demand, productivity gains and rising intakes of new work can be attributed to the growth. Hence, the current Purchasing Managers Index (PMI) signals a strong manufacturing sector and the services sector is present in the country.