Markets In a Nutshell
After witnessing a decline in the preceding week, Indian equity markets bounced back with the benchmark as well as broader indices witnessing gains of more than 2%.
While the Nifty 50 closed at an all time on Thursday, performance was all-rounded, as similar gains were seen across the headline index, banking and mid caps.
On the sectoral front, most of the indices ended the week with gains, with the exception of the indices of Energy and Oil & Gas.
Index | September 6, 2024 | September 13, 2024 | % Change |
Nifty | 24,852 | 25,356 | 2.03 |
Bank Nifty | 50,576 | 51,897 | 2.61 |
Midcap Nifty | 58,502 | 60,016 | 2.59 |
Weekly Top Gainers (Nifty 500) | Gain (%) |
Jubilant Pharmova | 25.15 |
Century Textiles | 20.26 |
Prism Johnson | 18.04 |
Apar Industries | 16.29 |
Campus Activewear | 16.22 |
Weekly Top Losers (Nifty 500) | Loss (%) |
Granules India | 19.34 |
PFC | 8.40 |
Cera Sanitaryware | 7.95 |
Raymond | 7.67 |
The Phoenix Mills | 7.32 |
Keep the Dough Rolling!
Last week, the global markets were jittery over the macroeconomic situation in the US, which had a spillover effect on the Indian markets as well. However, the sentiment turned around completely within a week. Broad reasons for this 180 were:
The ECB lowered deposit rates by 25 bps to 3.5%, kickstarting the rate cut process in the region
Employment data in the US solidified expectations of a rate cut by the Fed in the next meeting, which is next week
Oil prices saw a correction on increased concerns about global demand and delayed production cuts by the OPEC, which is a positive for the net importers that we are
India’s CPI inflation came in at 3.7%, which remained steady in August 2024, and below RBI’s target of 4% for the second consecutive month
The reversal of monetary policy globally, and controlled inflation in India should both give the RBI leeway to follow suit.
All these factors resulted in India benefitting from good liquidity. Strong inflows continued not only from DIIs, but also from FIIs.
Just to put things in perspective, in the first 12 days of September 2024, FII’s turned into net buyers to the tune of > Rs. 14,000 crore, in the backdrop of mixed foreign flows in emerging markets this year so far.
Going ahead though, one can expect foreign flows to remain volatile, but positive, over a longer period, supported by an improving sentiment globally, and underscored by India’s own structural tailwinds.
But, Prudence Is Necessary
While liquidity has been buoyant, and that’s great for the markets, there is something that needs addressing - the abundance of NFOs (New Fund Offers) by different AMCs (Asset Management Companies).
By default, fund raising activity in the equity markets gets elevated when the markets are at new highs, or even near new highs. The same gets reflected in the number of QIPs, IPOs and even for mutual funds, in the form of NFOs.
There is nothing wrong in such offerings being made during a bull run. The problem however lies in the fact that money is being raised in sector-focused funds and thematic funds, at peak valuations.
In 2024 so far, 30 sectoral and thematic funds were offered, which collected a whopping Rs. 52,955 crore in just eight months.
Month (2024) | NFOs | Thematic Schemes | Funds Raised (Thematic / Sectoral) Rs. crore |
January | 17 | 1 | 174 |
February | 20 | 5 | 7,178 |
March | 19 | 5 | 3,074 |
April | 9 | 1 | - |
May | 9 | 2 | 9,563 |
June | 17 | 9 | 12,974 |
July | 15 | 2 | 9,790 |
August | 18 | 5 | 10,202 |
Total | 124 | 30 | 52,955 |
The problem with this is that sectoral and thematic funds are inherently risky. One can generate higher returns, if the sector’s outperformance lasts longer. However, with NFOs raking in money and investing at peaky valuations makes sustainability questionable.
There is ample evidence that history brings to the table. During 2005-08, there was a plethora of sectoral funds launched, oriented towards the sectors of infrastructure, power and real estate. After that, it took a decade for these sectors to revive.
This time around, it is sectors like PSUs, railways, defence and renewable energy that are seeing the summit of the hype cycle.
Even other than this, we feel there are enough questions to raise before investing in NFOs:
In the case of NFOs, there is no track record to analyse the performance of the fund. So you are essentially trusting the unknown
With NFOs being open for subscription for a maximum of 15 days, after which you can simply pick them up off the market, why even bother with NFO subscriptions? After all, unlike in IPOs, where demand is high and there is money left on the table consequently resulting in listing day gains; NFOs are simply offered at NAV (Net Asset Value) during and after the subscription period
The few initial investors in an NFO bear the expense ratio of the fund, till the investor base in the fund normalises over time, resulting in higher costs for investors
Net net, whether sector funds or not, NFOs in general seem like an avoidable idea.
What to Expect Next?
Overall there is good liquidity in the equity markets. The tremendous response the Bajaj Housing Finance IPO for example highlights the underlying strength.
The company planned to raise Rs 6,560 crore and the account for the same under ASBA was blocked for Rs. 3 lakh crore.
This shows how much money is waiting on the sidelines to be invested in the markets as we move forward.
As for the coming week, we expect the bullishness to sustain, and for the Nifty to possibly move towards 25,550-25,850.
Bank Nifty, which has been underperforming so far is expected to outperform and make a move towards all time high levels soon.
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