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Below the Quote on Market Outlook Report - November by Mr. Rajeev Radhakrishnan, CIO, Fixed Income, SBI Mutual Fund and Mr. Gaurav Mehta, CIO, Alternatives Equity, SBI Mutual Fund

Relatively stronger data and uncertainty surrounding the US election outcome has led to benchmark US 10Y yields moving up by around 70 bps since the rate cut in Sep24. While the outcome and the impact of the US elections are awaited, the fact remains that the global risk-free benchmark asset continues to remain a source of ongoing volatility across most other asset classes. The other factor impacting domestic markets last month was the stimulus measures undertaken by China, leading to portfolio flows back into Chinese assets and possibly some rotation out of India.

Chart 1: FIIs pull money out of India in Oct 24

EQUITY

Mean reversion has been at work in financial markets for the past few weeks and continued to work its way through in the month of October as well. Indian equities that have been amongst the best performing asset classes over the past few years, significantly underperformed. Similarly, US bonds plummeted as long end yields surged despite a rate cut by the US Federal Reserve. On the other hand, some of the laggard assets such as Emerging Market (EM) equities, especially Chinese equities, has started to outperform as have global commodity stocks.

Within Indian equities, defensive sectors such as Consumer, Healthcare and Technology have started to outperform their cyclical counterparts such as Defense, Real Estate, Industrials and PSUs. From a style standpoint, Quality has started to outperform Value. Also, market breadth that had been exceptionally strong with broader markets outperforming large cap indexes over the past many quarters, has started to narrow.

Chart 2: Defensive sectors have started to perform while cyclicals drag

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