Health of Wealth – March 2024

1. Should Equity Investors Worry about Upcoming Election?

The data show that election years have been good for the Indian equity market.

IMPACT: NEUTRAL

In general, the election’s outcome tends to influence the equity market for a short period, especially when results are announced, there might be short-term volatility but not necessarily for the entire year.

It is usually the news & social media, that hype the election results with the markets because of which investors get panicked or overexcited. But on the contrary, as the data shows, historically, the elections have not had much adverse impact on the markets at the end of its calendar year.

Hence, investors are advised not to chase the hype or get influenced by the news headline. As always, we reinforce maintaining a balanced approach to investing.

As for the US 2024 elections, several significant issues are at the forefront of public discourse, shaping the policy contrasts between candidates Joe Biden and Donald Trump. Abortion, Immigration, Health care, Taxes, Judges & the Supreme Court, Trade and Foreign policy being the seven key areas where their stances differ.

2. Gold is shining the brightest! But why?

Gold is trading at an all-time high amidst global uncertainties.

IMPACT: POSITIVE

Gold prices are experiencing a historic surge, driven by increased central bank buying, particularly by China. This trend raises critical questions for investors: is this a strategic opportunity or a short-term euphoria?

• Geopolitical tensions and concerns about US dominance are prompting central banks to diversify their reserves away from the US dollar.
• Analysts at the World Gold Council predict that central bank gold buying could be a sustained trend for several years, as countries like China aim for further diversification (their current gold reserves represent only 4% of their total reserves).
• While gold's long-term outlook may be promising, the current price surge is likely due to a confluence of factors, including central bank diversification, speculation over the Fed rate cut, and distress in the Middle East.

Gold's role as a hedge against equity market risk is not always straightforward and recent trends may indeed deviate from traditional correlations. Factors such as dollar strength, geopolitical events and changes in interest rates can all influence gold prices in ways that may not align with broader equity market movements.

3. Surge in Oil prices due to distress in the Middle East

Oil prices climbed after Iran's attack on Israel, the short-term trend is upward due to the Israel-Hamas conflict.

IMPACT: NEGATIVE

Oil prices climbed after Iran's attack on Israel. Traders are concerned about a potential Israeli response leading to supply disruptions in the Middle East. This adds to existing factors like OPEC+ cuts and geopolitical risks, pushing oil prices higher despite strong global demand.

4. Strong Indian Economy.

The Q3 Current Account Deficit stands at 1.2% of GDP.

IMPACT: POSITIVE

The Current Account Deficit has narrowed to $ 10.5 billion (1.2% of GDP) in Q3 FY 2023-24 vs $ 11.4 billion (1.3 % of GDP) in the previous quarter and $16.8 billion (2% of GDP) in the previous FY (Q3 FY 2022-23).

As per RBI,

Overall, this narrowing deficit is an indication of strong economic growth prospects for India.

5. Stellar Performance of Indian Equity Markets in FY24

Nifty and Sensex were all up by a record high in the previous FY2023-24.

IMPACT: POSITIVE

India’s Benchmark indices Sensex and Nifty and other sectoral indices have closed FY 24 on a high note. This bullish trend can be attributed to strong economic growth, robust corporate earnings and domestic inflows. Also, it was propelled by widespread buying across various sectors despite challenges such as a depreciating rupee affecting market sentiment.

The data shows the returns generated across the indices in FY 24.

During the fiscal year 2024, the S&P BSE Sensex index has touched multiple record highs, the index has recorded a 25% increase, and the market capitalization of BSE-listed companies surpassed Rs 333 lakh crores, or $ 4 trillion, for the first time ever in November 2023. Since COVID-19 low, the index has given a stellar performance of 187%.

Nifty delivered 31%, the Midcap Index gave 61% and the Smallcap gave 70% returns.

Sectoral Indices like realty, PSU Banks, and Auto have done appreciably well, delivering 133%, 89% and 75% returns respectively.

Overall, FY 24 was an outstanding year for the Indian Stock Markets, outperforming prior years’ performance and generating investors with optimal returns.

6. Steady Power Consumption Growth.

India’s power consumption grew 1.4% to 129.89 BU in March.

IMPACT: POSITIVE

As per the government data, India’s power consumption growth remained subdued at 1.4 % to 129.89 billion units (BU) in March 2024 as compared to the year-ago period.

The highest supply in a day (peak power demand) rose to 221.70 GW in Mar 2024 as against 208.92 GW in Mar 2023 and 199.43 GW in Mar 2022.

The Power Ministry had estimated the country’s electricity demand to touch 229 GW during the summer of 2023. However, it did not reach the projected level in April-July due to unseasonal rainfall.

However, as per experts, power demand and consumption may see a significant increase from here onwards as the summer begins unless there is unseasonal rainfall.

7. A check on AMFI Stress Test 2024 Result.

Small-cap funds take longer to liquidate compared to mid-cap funds.

IMPACT: NEUTRAL

The stress test calculates the number of days required to liquidate assets based on their recent trading volumes. The objective of this stress test is to ascertain how soon fund managers can liquidate their portfolios if the investors were to rush for redemptions under market downturns or mass redemptions.

AMFI’s stress test data reveals key differences in small-cap and mid-cap fund liquidity.

For 25% liquidation: 0.25 – 30 days.

For 50% liquidation: 60 days for small caps & up to 14 days for Midcap.

Our View:

• Small Cap Funds take longer to liquidate compared to Midcap Funds.
• A highly liquid portfolio allows investors to easily withdraw their money during market downturns. This can be beneficial for those seeking quick access to their funds in a panic situation.
• Existing Investors have easier access to funds during downturns.
• Existing Investors face losses if quality stocks are liquidated to meet redemption pressures.
• Fund size doesn’t guarantee quick liquidation whether large/small portfolio composition matters more.
• Borrowing against the portfolio can provide liquidity during volatility without selling the holdings.