Week of high expectations

The Indian stock market closed higher last week, driven by positive global sentiment🧘, expectations of a forthcoming interest rate cut✂️by the US Federal Reserve and continued strong domestic inflows. The Nifty50 and BSE 500 indices advanced over 1% and 3% respectively. The FOMC minutes were the week’s big talking points. It indicated a high inclination to cut rates. However, it did not commit to anything beyond the first one in September🗓️.

As such, some of the critical events in the domestic equities include these key stories:

RBI minutes reveal a cautious stance

The RBI acknowledges the potential for lower headline inflation in the second quarter due to base effects but remains cautious about persistent food inflation🌾. This stickiness in overall inflation is hindering progress towards the 4% target. While good monsoons and agricultural improvements offer some optimism, uncertainties persist. Adverse weather, geopolitical tensions, and financial market volatility continue to pose risks. The RBI emphasises the need for an actively disinflationary monetary policy to anchor inflation and prioritise its control, balancing this with resilient growth📈. The deputy governor warns that accumulating price pressures can threaten inflation and growth prospects. According to the central bank, the real Gross Domestic Product (GDP) growth for 2024-25 is projected at 7.2% and retail inflation for the same period is projected at 4.5%💸.

But in another news

The auto sector is under pressure 

India’s Commercial Vehicle (CV)🛻sector is experiencing a significant downturn after several years of strong growth. Sales have been declining year-on-year, with July marking a low single-digit growth (a sharp drop)🌠, especially in the medium and heavy commercial vehicle segment. This downturn, initially attributed to temporary factors like elections and a high base effect, now appears to be a sustained trend. Several factors contribute to this slowdown, including delayed monsoon rains, high temperatures, erratic rainfall patterns🌦️, the slowdown in e-commerce, and the average age of the CV fleet reaching a record high. Industry analysts predict that the CV sector will continue to face headwinds in the first half of FY2025, with some recovery expected in the second half due to a lower base effect and potential interest rate cuts. The industry is projected to contract by 3-6% in FY25.

Meanwhile, the passenger vehicle🚍market is also facing challenges with rising inventories, growing discounts, and concerns about whether local carmakers can sustain robust sales. The upcoming festival season will be a crucial test for the auto industry🎀.

That said, this downturn could present opportunities for investors seeking to enter the market at a lower price point.

Goldman Sachs lowers India’s GDP growth forecasts

Goldman Sachs has revised its GDP growth forecasts🔭for India downward (decrease of 20 basis points for each year), projecting 6.7% growth in 2024 and 6.4% in 2025 due to a significant contraction in government spending during the April-June quarter and efforts to reduce the fiscal deficit below 4.5%. Another contributing factor is the projected slowdown🐌in household credit growth due to stricter RBI regulations. However, Goldman Sachs expects the RBI to start an easing cycle in December 2024, which could partially offset these downward pressures on GDP growth.

What’s next?

The upcoming week will be pivotal for India’s economic outlook and the equities market trajectory. Key domestic cues will provide valuable insights, including the Q1FY25 GDP growth rate, core sector performance, and fiscal deficit update. Meanwhile, the United States will release its second GDP estimate for Q2 and inflation data, which could significantly impact global markets. This was all for this week. We will be back next week with more market stores.

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