August 2024

Global and Market Context

Global financial markets during August 2024 experienced heightened volatility driven by shifts in global monetary policy expectations and currency movements. Early in the month, concerns around tightening monetary conditions in Japan triggered significant turbulence across global markets.

The Bank of Japan's policy developments led to a strengthening of the Japanese yen, which resulted in the unwinding of yen-funded carry trades. This triggered sharp corrections in Japanese equity markets, with the TOPIX index declining nearly 25% from its peak, including a significant single-day decline of approximately 10%.

These developments briefly affected global risk sentiment, although the impact on Indian markets remained relatively contained. Investors also closely monitored expectations surrounding the anticipated beginning of the U.S. Federal Reserve's interest rate cutting cycle, expected to commence in September. Despite these global uncertainties, India's macroeconomic environment remained supportive, backed by stable policy conditions and continued domestic economic momentum.

Market Overview

Indian equity markets experienced significant volatility during the early part of August 2024 before stabilizing and rallying toward the end of the month. The Nifty 50 index reached a new all-time high and closed the month with a gain of approximately 1.14%, despite experiencing an intra-month trading range of nearly 6%.

Similarly, the Nifty Midcap index recorded an intra-month range of approximately 8%, eventually closing the month at an all-time high with gains of roughly 0.5%. The early volatility reflected global macro concerns, particularly related to currency movements and shifts in global liquidity conditions.

However, the Indian market recovered quickly from the initial drawdown, demonstrating resilience relative to global peers.

Macroeconomic Developments

Domestic monetary policy remained stable during the month. The Reserve Bank of India maintained its policy stance, continuing its cautious approach to balancing inflation control with economic growth.

The central bank also revised its CPI inflation forecasts higher for the upcoming quarters, highlighting the need for continued vigilance regarding inflation dynamics. Globally, markets increasingly focused on the timing and magnitude of potential interest rate cuts by the U.S. Federal Reserve, with expectations building toward the beginning of the rate-cut cycle in September.

Sector and Economic Indicators

The corporate earnings season concluded during August with results broadly in line with market expectations. Across sectors, companies continued to demonstrate steady earnings growth, although topline growth remained relatively subdued.

Certain sectors experienced margin pressures during the quarter; however, investors largely viewed these pressures as temporary and expected improvement driven by a potential recovery in rural demand. Activity in primary markets remained particularly strong. During August, 10 mainboard IPOs collectively raised approximately ₹17,000 crore, while an additional 25 SME IPOs were launched during the month, highlighting strong investor appetite for new equity issuances.

Foreign Investment Trends

Investor participation remained healthy across domestic capital markets. Strong activity in primary markets reflected continued investor interest in equity investments.

Institutional and retail participation continued to support overall market liquidity, particularly during periods of heightened volatility earlier in the month.

Currency and Market Internals

Global currency movements played a significant role in shaping market sentiment during the month. The strengthening of the Japanese yen and the unwinding of global carry trades contributed to short-term volatility across international markets.

Meanwhile, the U.S. dollar weakened against several major currencies following downward revisions to U.S. nonfarm payroll data, which reinforced expectations of an upcoming Federal Reserve rate cut cycle. Despite these global developments, Indian equity markets demonstrated resilience, with market participants remaining focused on domestic growth prospects.

Sector Allocation and Stock Selection

Portfolio positioning continues to emphasize companies with strong balance sheets, sustainable earnings growth, and disciplined capital allocation. In volatile market environments, focusing on risk-adjusted returns and identifying fundamentally strong companies becomes increasingly important.

Portfolios emphasizing high-quality businesses with strong governance standards and consistent profitability are better positioned to navigate periods of global uncertainty.

Outlook

Looking ahead, global macroeconomic developments are expected to remain the primary source of market risk. Investors will closely monitor upcoming decisions by the U.S. Federal Reserve, as well as global political developments including the approaching U.S. presidential elections.

Domestically, the continuity of government policy and the fiscal prudence signalled in the Union Budget continue to support India's long-term economic outlook. While global macro volatility may periodically affect markets, the Indian economy remains well-positioned relative to many global peers.

In this environment, maintaining disciplined portfolio construction and focusing on opportunities that offer attractive risk-adjusted returns remains central to our investment approach.

Major Indices – August 2024