Health of Wealth - October 2024

1. Silver is Shining....But Why?

As of Oct 31, 2024, silver has reached Rs 1,03,200/kg delivering impressive returns of 42.36%(YoY).

IMPACT: POSITIVE 

In general, apart from being a precious metal. silver has many industrial use cases in industries like medicine, solar energy, EVs etc. 

Global demand for silver has risen sharply in recent months, primarily driven by the electric vehicle (EV) industry and the growing use of solar energy technologies. Silver’s critical role in electronics, solar panels, batteries, and increasingly in semiconductors, has made it an essential component in modern technology.

This growing industrial demand has pushed silver prices higher, particularly in markets like India, where prices have recently surpassed ₹100,000 per kilogram.

Impact of China’s Stimulus and US Fed Rate Cuts:

As one of the world’s largest consumers of silver, China plays a key role in driving demand. The country’s recent economic stimulus—focused on infrastructure and manufacturing—has significantly boosted demand for silver.

Similarly, the US Federal Reserve’s decision to cut interest rates in September 2024 has further supported silver prices, with lower interest rates typically weakening the US dollar and making precious metals more attractive to investors.

However, please be aware that silver has been one of the most volatile metal historically and any investment in this metal must be done with proper asset allocation strategy.

2. An Update on India’s Monsoon 2024

India's monsoon season for 2024 has ended with an 8% surplus rainfall, according to the Indian Meteorological Department (IMD).

IMPACT: POSITIVE 

India's monsoon season for 2024 (June to September) ended with 108% of the long-period average (LPA) rainfall, marking the season as above normal, as forecasted by the Indian Meteorological Department (IMD).

Monthly Rainfall:

Rainfall over the country was 89% of LPA in June, 109% of LPA in July, 115% of LPA in August, and 112% of LPA in September, reflecting a gradual increase in rainfall as the season progressed.

Despite some regional variations in rainfall, the overall monsoon season was a positive one for India. However, localized flooding was reported in certain regions due to heavy rains.

3. Intense FII Selling in Oct 2024

FIIs sold Rs 94,017 Cr of Indian equities in October 2024.

IMPACT: NEGATIVE 

The FII’s are offloading their shares from the Indian Equity Market, pulling out Rs. 94,017 crores from the Indian exchanges (highest ever FII selling in a single month) in October 2024.

The FII selling pressure led to a sharp decline in Indian benchmarks, with the NIFTY 50 dropping by 6.22% (MoM) and the Sensex falling by 5.82% (MoM) in October.

Geopolitical tensions, weak Q2 earnings, and global economic conditions, and premium valuations have fueled this sell-off.

This sell-off seems huge in absolute terms, however it is merely 0.2% of total market cap of Indian equity market. It is not the quantum of FII exit, but the intensity of it is creating panic.

While the FII sell-off appears intense, the inflows by domestic institutional investors (DIIs) have helped the Indian markets compensate to some extent in October. Domestic Institutional Investors (DIIs) have stepped-in to counterbalance the FII exodus, pouring ₹107,255 crore worth of Indian Equity (highest ever DII buying in a single month).

4. US Fed Cuts Rates for the first time since 2020

US Fed started shifting the gear from a rate hike cycle and cut 50 bps.

IMPACT: NEUTRAL

In a widely anticipated move, the US Federal Reserve cut interest rates by 0.5% on 18-September-2024. marking its first-rate reduction since 2020.

The current federal funds rate range now stands at 4.75%-5%, effective as of September 2024. Fed sees 2 more 25 basis point rate cuts in 2024, which will take the rate to 4.25-4.5 %. The rate cut is expected to inject liquidity, stimulate borrowing, and boost consumer spending.

A US rate cut can have a significant ripple effect on the Indian market. When the US Fed cuts interest rates, the Reserve Bank of India (RBI) often follows suit, reducing interest rates in India. This decrease in interest rates makes borrowing cheaper, which can boost consumer spending and economic growth.

The Fed has hinted at several more rate cuts until 2025, which will keep global markets on edge.

5. Unprecedented Surge in China’s Equity Market

Chinese Equity Market Surges 17% in September on Stimulus & Rate Cuts.

IMPACT: NEUTRAL

China's Equity Market witnessed an extraordinary surge in September, with the Shanghai Composite Index soaring 17% - its largest monthly gain since 2015.

Key Drivers of the Market Rally:

The rally was fueled by a combination of government stimulus measures and aggressive rate cuts to boost its slowing economy.

• Monetary Policy Easing:As per “The People’s Bank of China”, cutting the Reserve Requirement Ratio RRR), will inject around $141.7 billion into the financial market, providing long-term liquidity. This move will benefit 150 million people across the country, reducing the average annual household interest bill by about 150 billion yuan.
• Fiscal Stimulus:Infrastructure spending of 1 trillion yuan $141.7 billion) and Mortgage rate cuts to lower interest rates on existing loans, reducing the average annual household interest bill by 150 billion yuan.

Hence, China's equity market rallied sharply in September, with key indices posting impressive gains: Shanghai Composite (+17.39%), Shenzhen Component (+26.13%), CSI 300 (+20.97%).