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* Nifty scales a record high; consolidates in May’24: After scaling new highs of 23,111 in May’24, the benchmark ended its three-month winning streak. The index oscillated 1,290 points before closing 74 points (or 0.3%) lower MoM at 22,531. The Nifty is up 3.7% in CY24YTD. Midcaps outperformed large caps by 1.9%, while smallcaps underperformed by 1.6%. Similarly, in CY24YTD, midcaps and smallcaps have outperformed largecaps and have risen 12% and 10.3%, respectively, vs. a 3.7% rise for the Nifty.

* DII inflows remain strong; FIIs record the second consecutive month of outflows: DIIs recorded the ten consecutive month of inflows in May’24 at USD6.7b. FIIs recorded outflows of USD3b in May’24. FII outflows into Indian equities stand at USD2.8b in CY24YTD vs. inflows of USD21.4b in CY23. DII inflows into equities in CY24YTD continue to be strong at USD25b vs. USD22.3b in CY23.

* Breadth adverse in May’24: Among sectors, Capital Goods (+11%), Utilities (+7%), Metals (+6%), Real Estate (+5%), and Automobiles (+4%) were the top gainers, whereas PSU Banks (-3%), Technology (-2%), Private Banks (-1%), Media (-1%), and Healthcare (-1%) were the top laggards MoM. M&M (+16%), Hero Motocorp (+13%), Adani Enterp. (+12%), Adani Ports (+8%), and Britannia (+8%) were the top performers, while Titan (-10%), Tata Motors (-8%), Shriram Finance (-8%), Dr Reddy’s (-7%), and ONGC (-7%) were the key laggards.

* Major economies end lower in May’24: Among the key global markets, the US (+5%), Taiwan (+4%), the UK (+2%), ended higher in local currency terms. However, Russia MICEX (-9%), Indonesia (-4%), Brazil (-3%), Korea (-2%), China (-1%) ended lower MoM in May’24. Over the last 12 months, the MSCI India Index (+31%) has significantly outperformed the MSCI EM Index (+9%). Over the last 10 years, the MSCI India Index has outperformed the MSCI EM index by a robust 197%.

* Earnings review – 4QFY24: A broad-based beat!: The 4QFY24 corporate earnings ended on a strong note, with widespread outperformance across aggregates. Domestic cyclicals, such as Autos and Financials, along with Healthcare, Capital Goods, and Cement drove the beat. Conversely, global cyclicals (Metals and O&G) dragged down overall profitability. Nifty delivered a strong beat with a 12% YoY PAT growth (vs. est. of +5%). Five Nifty companies – HDFC Bank, SBI, ONGC, Tata Motors, and Coal India – contributed 72% of the incremental YoY accretion in earnings. Ex-Metals & O&G, Nifty’s earnings grew 16% YoY (vs. est. of +9%).

* Economy – Real GDP growth beats all estimates: Real GDP growth came in much higher than expected, at 7.8% in 4QFY24 vs. 8.6% (revised higher from 8.4%) in 3QFY24 and 6.2% in 4QFY23. The number was much higher than the market consensus and our expectation of 7%. Higher-than-expected GDP growth was led by higher government consumption and a higher contribution of net exports. Private consumption improved slightly in 4QFY24, as per our forecasts. In other words, robust growth in real net indirect taxes and higher discrepancies led to higher-than-expected real GDP growth.

* Our view: India is currently experiencing a mini-Goldilocks moment due to solid macroeconomic conditions, healthy corporate earnings, peaking interest rates, moderate inflation print, and ongoing policy momentum. Nifty is trading at a 12-month forward P/E of 19.2x, at a 5% discount to its own long-period average (LPA). Our model portfolio remains aligned with the key domestic cyclical themes amid a consistent backdrop of earnings growth. We remain OW on Financials, Consumption, Industrials, and Real Estate. Industrials, Consumer Discretionary, Real Estate, and PSU Banks are our key preferred investment themes. We have also made several additions from a bottom-up viewpoint across sectors in our model portfolio.

* Top ideas: Largecaps – ICICI Bank, SBI, ITC, L&T, HCL Tech, M&M, Coal India, Titan, ABB, Zomato, and Hindalco; Midcaps and Smallcaps – Indian Hotels, Godrej Properties, KEI Industries, Global Health, JK Cements, PNB Housing, Cello World, Sobha, Kirloskar Oil, and Lemon Tree Hotel.

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