The global economic landscape presents a mixed picture. While the U.S. economy remains relatively steady, China’s growth continues to slow, prompting the government to introduce fiscal stimulus measures aimed at stabilizing its economy and capital markets. Despite these efforts, China’s economic fragility persists, raising concerns about sustained recovery.
Domestic Economic Insights
In India, growth for the September quarter has shown signs of moderation. Rural consumption has seen improvement, while urban consumption has slowed. Government capital expenditure (capex) is subdued, likely due to the upcoming elections in June 2024. Alongside this, a slowdown in bank lending has led to a weaker spending impulse. However, there is potential for a resurgence in spending in the near future.
Outlook on Equity and Fixed Income Markets
Equity Market: We believe India is on the cusp of a favorable economic growth cycle, which should make its equity markets attractive for investment over the next 3–5 years. We maintain a pro-cyclical approach and are overweight on financials, industrials, and consumer discretionary sectors. Our portfolio is currently tilted towards domestic investment and consumption growth opportunities, and we have tactically increased our allocation to the IT sector, with the financial sector looking increasingly attractive.
Fixed Income Market: Inflation is expected to moderate in the coming months. The central government’s fiscal situation appears strong, with continued fiscal consolidation anticipated for FY25 and FY26. India’s inclusion in JP Morgan’s EM Bond Index is set to drive strong demand, and demand from pension funds and insurance companies remains robust. Long-term bonds look attractive due to favorable demand-supply dynamics, and India may soon enter a rate-cutting cycle. The short end of the yield curve also appears promising, supported by a reduction in T-bill supply
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