After a volatile month of January, equity markets recouped in February as both the benchmark indices posted gains in excess of 1% for the month. The markets seemed to cheer the reduction of the annual fiscal deficit target from 5.8% in FY24 to 5.1% of GDP in FY25 announced by the government in the Union Budget. Better than expected macro data contributed to the optimism. On the global front, weaker U.S. retail sales data along with below than expected industrial production data for Jan 2024 also contributed to the market upside as it raised expectations of an interest rate cut by the U.S. Federal Reserve in the near term . The MPC reiterated need to remain vigilant on geo-political risks and supply-side issues and re-emphasized the inflation target of 4% before any monetary easing. In terms of sectoral performance, Oil & Gas, Autos and Realty were the top performers while Banks, Infrastructure and Metals were the key laggards for the month. FIIs inflows recouped to an extent after the sharp sell out in January, with the net buy figure standing at USD 185 mn.


The HSBC India Composite PMI came in at 60.6 in February 2024 (revised downward from an earlier print of 61.5). Paces of expansion were broadly similar at manufacturers and services firms, though the former logged an acceleration and the latter witnessed a slowdown. Input prices rose at the slowest rate since August 2020, with the service sector seeing a sharper increase than its manufacturing counterpart. Prices charged went up at their softest pace in two years.


Feb’24 CPI inflation moderated further marginally to 5.09% from 5.1% in Jan’24. Food & Beverages inflation moderated significantly to 8.8% in Feb vs 9.6% in Jan, mainly led by cooling of vegetables & fruits inflation, partially offset by elevated cereals, meat and fish price inflation. Egg saw a huge spike although its weight in the index is insignificant. Other food items (milk, pulses, etc.) continue to witness a mild inflation on sequential basis. Core inflation grew 0.2% MoM at 3.4% YoY after registering a rise of 0.3% MoM in January. ‘Housing’ prices saw a sequential increase of 0.5% while ‘Clothing and footwear’ prices increased by 0.2% MoM. WPI picked up to 0.73% YoY in Dec-23 from 0.26%YoY in Nov, led by primary articles (5.8% vs 4.8%). Meanwhile, fuel and power (-2.4%) and manufactured products (-0.71%) continued in the deflationary zone. WPI inflation remained steady at 0.2% on yearly basis in February 2024 versus 0.27% in January 2024. Food price inflation offset the decline in fuel and manufacturing inflation.


Bond yields fell mostly during the month after the interim union budget for FY25 positively surprised the market participants with lower-than-expected fiscal deficit and gross borrowing targets. Gains were extended as foreign investors went on a buying binge before Indian government bonds were set to be added to JPMorgan's emerging market debt index in Jun 2024. However, gains were restricted after the Reserve Bank of India kept rates unchanged without providing any major dovish guidance in its monetary policy committee meeting. The benchmark 10 year Gsec yield softened by 6 bps from 7.14% to 7.08% in February. Corporate bond spreads witnessed contraction across maturities as state borrowings were lower than what was announced.


The first half of March has witnessed a return of volatility in the equity markets, largely due to the key market regulator coming down on mid and small cap funds, expressing concerns on valuation froth getting built up. This has led to quite a bit of selling in the market as small cap and mid cap indices have witnessed losses of ~8% and ~5% respectively within a week's time. The second half of the month could see some respite from the selling as many global indices of Indian stocks will witness rebalancing.



Investment team

Pramerica Life Insurance