Key catalysts behind Indian and global market trends: A week in retrospect

Throughout this period, a whirlwind of developments, including the escalation of tension in West Asia following Iran's attack on Israel, has stirred the market waters, driving excitement and intrigue among investors.

Let's uncover the key trends and events that have shaped the week's market performance.

Primary Market Update:

The follow-on public offering (FPO) of Vodafone Idea opened for public issue on Thursday, aiming to raise Rs 18,000 crore.

IPO of JNK India will open next week to raise 649 crores.

“Despite a slow start at the beginning of the new financial year, we are exceedingly optimistic about the initial public offerings scheduled for the remainder of the year,” noted Mahavir Lunawat, Managing Director, Pantomath Capital Advisors.

This optimism is fuelled by a confluence of factors, including the surge in domestic capital, enhanced governance practices, the vibrant spirit of Indian entrepreneurship, and favourable government policies bolstered by FDI support.

Indian Market Update:

Indian market witnessed selling pressure during the week due to geopolitical tensions that arose after Iran's attack on Israel.

It has affected all markets across the globe during this week. In the short term, the Indian Market will remain volatile ahead of Geopolitical tensions & beginning of Q4 FY2024 earning season, noted Lunawat.

CPI (Retail inflation) in India fell to 4.85% in March 2024, the lowest since May 2023, from 5.09% in February 2024, primarily due to a reduction in food & Energy inflation.

The WPI rose to 0.53%, a three-month high, primarily due to increase in the prices of vegetables, potatoes, onions, and crude oil.

This contrast shows that while wholesale prices (the cost for wholesaler) are increasing, consumer-facing prices are cooling, partly reflecting a lag between wholesale changes and their impact on retail prices, he underscored.

India’s trade trade deficit narrowed to $15.6 billion for the month of March 2024, down from $18.1 billion a month earlier, primarily due to a significant drop in imports, which decreased by 4.5% to $57.28 billion.

India's Index of Industrial Production (IIP) in February 2024 rose by 5.7% vs 3.8% in January due to notable growth in mining, power generation, and consumer durables, alongside a steady output in manufacturing.

India is revising its trade agreement with ASEAN to correct tax imbalances that disadvantage local manufacturers and to block duty loopholes, aiming to boost domestic industry growth by next year.

The Asian Development Bank (ADB), and International Monetary Fund (IMF) have issued positive forecasts for India's economy. The ADB raised its growth projection for FY25 to 7%, driven by robust investment and consumer demand.

The IMF expects a growth of 6.8% for FY25, emphasizing strong domestic demand. These forecasts highlight India's continued economic expansion, supported by significant investment and effective fiscal policies.

The India Meteorological Department (IMD) has forecasted an "above normal" monsoon for India from June to September this year, predicting that the shift from El Niño to La Niña conditions will bring beneficial rains crucial for agriculture.

This is expected to help boost crop yields, reduce food prices, and support economic growth, especially after a previous year of erratic rainfall due to El Niño.

While most of India is expected to receive good rainfall, some regions in the northwest, east, and northeast may experience below-normal levels.

On the Sugar Sector, the Indian government has decided not to permit sugar exports for the remainder of the 2023-24 season, which ends in October, despite ongoing requests from the industry.

The Indian Sugar Mills Association (ISMA) had proposed exporting 10 lakh tonnes, citing expected sufficient stock levels by season's end. While sugar production in the country is anticipated to reach 31.5 to 32 million tonnes, the government is exploring alternatives like using surplus B-heavy molasses for ethanol production, instead of approving exports.

The impact of changes in the double taxation treaty between India and Mauritius is likely to be less significant on the Indian markets than previously anticipated.

Over the past decade, the proportion of funds invested in Indian equity markets from Mauritius has considerably declined. Data from NSDL shows that in March 2024, only 5.61% of the total Foreign Portfolio Investor (FPI) equity assets under management (AUM) were domiciled in Mauritius, a sharp drop from 14.53% five years earlier.

Consequently, Mauritius now ranks as the fourth largest investor in India, far behind the US, Singapore, and Luxembourg. This reduced investment share suggests that changes to the treaty will have a lesser effect on India's financial markets.

Global Market Update:

The US Market also witnessed selling pressure ahead of Geopolitical tension & recent comment by FED chair Powell during a panel discussion at the Wilson Center in Washington.

Fed Chairman said during a panel discussion. “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence. Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”

This approach signifies that the US has to deal with high interest rate for a prolonged period, which aligns with an assessment of further economic data, said Lunawat.

The recent Survey shows that a slight majority of the market expects the US central bank to only start reducing rates in September, while nearly 20% has positioned for no rate cuts at all this year.

Producer Price Index (PPI) in the US increased by 0.2% in March, down from a 0.6% increase in February, with a rise in services offset by a decline in goods prices.

Retail sales also rose by 0.7% in the month of March, following a revised 0.9% gain in February, driven by significant increases in nonstore retailers, gasoline stations, and miscellaneous store retailers, indicating continued strong consumer spending.

The European Central Bank held interest rates steady at 4.5% for a fifth straight meeting last week but gave its strongest indication yet that rate cuts could be ahead.

In a statement, the institution said, “it would be appropriate to reduce the current level of monetary policy restriction” if inflation continues to move toward its 2% target. Brent Crude is currently trading at around $90 per barrel, influenced by ongoing geopolitical tensions. Recent events have heightened market sensitivity, particularly the conflict in the Middle East following Iran's retaliatory strike on Israel. Additionally, geopolitical dynamics are further strained as the U.S. has reimposed oil sanctions on Venezuela, citing unmet election commitments by President Nicholas Maduro.

Similarly, the European Union is considering new restrictions on Iran in response to its attack on Israel.

These factors collectively contribute to the volatile trading environment for Brent Crude, as geopolitical uncertainties typically affect global oil supply perceptions and market stability.