Health of Wealth – May 2024

1. Robust Economic Growth for India in FY24

India’s GDP beats all estimates for FY24, grew at 8.2% in FY 24 and 7.8% in Q4.

IMPACT: POSITIVE

India’s gross domestic product (GDP) grew at 8.2% for the fiscal year 2023-24, and at 7.8% in the Q4 (Jan -Mar).

RBI had estimated growth rate of 7.6% for the fiscal year 2023-24 and 7% for January to March Quarter.

In the meantime, In this January-March quarter, Real GVA growth stands at 6.3% and at 7.2% for fiscal year 2023-24 over 6.7 % in 2022-23. The manufacturing sector has been a key driver of this growth, 9.9% (YoY) in 2023-24, as against -2.2% growth in the previous fiscal year.

The Real GDP has surged to Rs 173.82 lakh crore in 2023-24, up from Rs 160.71 lakh crore in the prior fiscal year, representing an 8.2% growth rate.

These numbers indicate the economy’s ability to withstand and maintain steady growth amidst global uncertainties and obstacles, with this strong GDP growth, India continues to be the fastest growing major economy in the world.

2. India's credit rating receives long-awaited boost

India gets an upgrade in the rating by S&P from ‘stable’ to ‘positive’ after 14 years.

IMPACT: POSITIVE

India's credit rating receives long-awaited boost. S&P Global has upgraded India’s rating from ‘stable’ to ‘positive’ after 14 years.

A 14-year gap between upgrades signifies India’s substantial progress in its economic and financial landscape. The shift from a ‘stable’ to a ‘positive’ outlook indicates growing optimism about India's economic prospects.

S&P Global predicts that India's economy will grow by 6.8% in 2025, 6.9% in 2026, and 7.0% in 2027 driven by strong consumer spending and increased public investment.

Currently, India is rated as BBB-, which is at the lowest end of the investment grade ratings.

However, an upgrade in India's rating by S&P signifies improving economic conditions and greater confidence in the country's financial stability. It can potentially attract more investments and positively impact on the overall economic outlook.

3. Phenomenal 141% Surge in Net Income of RBI for the FY 24

Enabling to approve Rs 2.11 lakh crore dividend payout to Government for FY 24.

IMPACT: POSITIVE

The Reserve Bank of India (RBI) reported a massive 141% surge in its net income for the financial year 2024 (FY24), driven by a decline in expenditures, particularly lower provisions as well as exceptional earnings from global securities and deposits. Here’s the breakdown.

Total Income: Rs. 275,572 Crore, comprising Rs. 188,606 Crore from interest income and Rs. 89,967 Crore from other income.

Interest Income Breakdown: Of the Rs. 188,606 Crore:

• Rs. 85,428 Crore from domestic sources, mainly from rupee securities and loans.
• Rs. 103,178 Crore from foreign sources.

Other Income Breakdown: The Rs. 89,967 Crore in other income is primarily from exchange gains on forex transactions. This income is generated by the RBI's strategy of selling dollars to prevent sharp appreciation, resulting in a profit of Rs. 83,616 Crore from these activities in FY24.

The rise in the Net income enabled the RBI to approve a record dividend of Rs2.11 lakh crore (record high surplus) to the government.

This massive dividend payout is expected to help the Govt. achieve its fiscal deficit target of 5.1% of gross domestic product (GDP) for FY25.

Overall, the remarkable surge in the central bank's net income, coupled with its record dividend payout, serves as a testament to the robust financial health of the RBI.

4. Earnings Review of Nifty 50 companies in FY 2024

Robust corporate earnings in FY 2024.

IMPACT: POSITIVE

The aggregated NIFTY 50 companies’ PAT for FY 2024 stands at 8.13 Lakh crores as against 6.42 Lakh crores from the previous fiscal year, an impressive growth of 27%.

Out of 50 companies, 49 reported profits. Tata Steel reported a loss for the FY 24. Out of 50 Nifty companies, 4 reported PAT greater than 50,000 crores with 2 Banks (SBI & HDFC).
Domestic cyclicals, such as Autos and Financials, along with Healthcare, Capital Goods, and Cement are the key drivers. Conversely, global cyclicals (Metals and O&G) dragged down overall profitability.

Overall, theFY24 corporate earnings ended positively with widespread outperformance across aggregates driven by margin tailwinds. 

5. What's Ahead: Market Outlook Post-Election Results

Market favors Continuity – Sensex trading at all-time high.

IMPACT: POSITIVE

The current Prime Minister has secured a third consecutive term in office, leading the newly formed government. Alongside, major ministries have been retained by ministers from the previous term. Government continuity has reduced market uncertainty, with the Sensex trading at 76-77k levels.

Markets are likely to remain volatile until the upcoming budget session. Stability could be maintained if corporate results meet expectations.
However, caution is advised due to high Market Cap/GDP ratio (at a 15-year high ~ 140%), especially in mid and small cap stocks, and a flood of new IPOs indicating potential risks.

Hence, allocate funds to equities that are not needed for at least 5 years. In these euphoric times, proceed cautiously with investments, continuing with disciplined, systematic investments.