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Executive Summary

* Global macro is weak – economies slowing down, interest rates increasing, fiscal pressure growing, inflation cooling off

* India – oasis of green. Growth is strong, inflation cooling, stable currency, stable bond market. India Elections short term material event.

* Long term returns are driven by earnings growth – higher growth leads to better returns and vice versa.

* Small and midcaps significantly outperformed large caps

* Trend since March 2020, which has accelerated since 1 st April, 2023 – poor RoE and weak growth companies outperformed their stronger counterparts.

* Possible reason could be longer duration for high growth stocks v/s low growth. Sharp interest rate increase caused longer duration to underperform shorter duration.

* Another reason for this trend to continue – FII are net sellers in last 9 months, while DII are net buyers in last 9 months.

* Valuations – Large Caps attractive, Mid Cap and Small Caps expensive

Global market outlook: Global growth to be steady

* IMF expects global growth to remain steady.

* Emerging Markets and Developing Economies are expected to grow at same pace of 4.1% in 2024.

* India’s growth is expected at more than 2x that of global growth at 6.5% in 2024, similar to that in 2023.

Global Bond Yields and Inflation have Cooled

* Global Bond Yields, led by US and Eurozone had increased substantially during December 2020 to December 2022 period.

* However, the rate of interest rate increase across markets has reduced

* This is in response to significant declines witnessed in inflation.

* However, the current inflation rate remains higher than the respective monetary authorities’ targets, due to which rates may be expected to remain stable for next 6 months

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