Topic 1: JANUARY 2024: THE ROLLERCOASTER RIDE

The dawn of the new year in 2024 brought with it a sense of hope and anticipation for investors, building upon the excitement that characterized the end of December 2023. The global landscape, rife with uncertainties, and the active economic measures taken by the current government set the stage for a dynamic start to the year. As economic numbers and corporate earnings painted a promising picture, January 2024 saw markets reaching all-time highs, only to experience a subsequent decline by the end of the month. This rollercoaster ride was marked by significant events that influenced both domestic and international investors. The month kicked off with a surge in market enthusiasm as economic indicators and corporate earnings created an optimistic atmosphere. However, this upward trajectory took a turn towards the end of January, influenced by jittery investor sentiment triggered by the corporate results of Q3 and the interim budget expectations. Major sectors, particularly banking and IT, witnessed profit bookings and leading to a marginal 0.03% decrease in Nifty at the end of the month, driven by global cues.

A pivotal moment occurred on January 17, 2024, when the markets experienced a significant crash. The Sensex plummeted by 1600 points, and Nifty saw a decline of over 400 points, with Nifty Bank taking the hardest hit, dropping by 2060 points in a single day. The following day witnessed a further slide, with Sensex falling below 71000 and Nifty dropping below the 22000 mark. On January 18, the Sensex recorded a decrease of 757.36 points, settling at 70,751.77, and Nifty faced a decline of 279.80 points, reaching 21,292.15. This volatile start to 2024 saw the market touch all-time highs on January 16, only to touch all-time lows in the next two days. The primary trigger for this crash was the stagnant Q3 results of HDFC Bank. However, the market rebounded, with the IT sector's corporate numbers reinvigorating investor confidence, leading to the Sensex touching over 71500 points by January 19. The losses were offset by strong December 2023 quarter earnings, coupled with hopes of a rate cut in March.

Foreign Portfolio Investors (FPIs) played a crucial role in shaping the economic landscape in January 2024. They turned net sellers during the month, divesting Indian equities worth ₹25,744 crore. This trend was spurred by a rise in US bond yields, which triggered a sell-off in the cash market. The debt market rally, initiated by the Fed pivot, resulted in the 10-year bond yield falling from 5% to around 3.8%. The recent increase to 4.18% aspected that a Fed rate cut might only occur in the second half of 2024. This potential rate cut could attract FPIs back into cash markets, especially to the Indian economy which appears more promising than other developing economies.

In the Indian debt market, FPI inflows continued since April 2023, showcasing significant variations in equity and debt segments in January. Equity witnessed net selling of ₹25,734 crore, while debt saw net buying of ₹19,836 crores (NSDL). Factors contributing to these trends include the rising US bond yields, high PE ratios in the equity market (around 21 on estimated earnings), and inclusion of Indian bond in the JP Morgan Bond index, which attracted FPIs anticipating future profits.

Remarkably, the Indian Rupee emerged as the top-performing Asian Currency in the forex market for January 2024. Despite depreciation observed in other Asian currencies, the Indian Rupee appreciated by 1% to 2%. The currency held stronger against the US Dollar, appreciating nearly 0.1% in the dollar index. However, the growth of the Indian Rupee is hindered by a stronger US Dollar, preventing it from breaking below the 83 threshold. The Finance Ministry's review emphasized the resilience of the Indian economy amid global challenges, attributing it to robust domestic demand, investment-led strategies, and macroeconomic stability.

The Indian government's ambitious projections envision the country becoming the world's third-largest economy, with a projected Gross Domestic Product (GDP) of $5 trillion over the next three years. Despite this positive outlook, external risks such as sticky inflation, sluggish global growth, and fiscal pressures in the global economy, coupled with ongoing tension around the Red Sea, pose potential threats. The Fiscal Budget 2024–25 aims to lower the fiscal deficit to 5.30% of GDP in 2024–25 from 5.90% in the current fiscal year. Welfare

spending is set to increase, with the government targeting a 4.5% budget deficit as a percentage of GDP by fiscal year 2025–26. As of January 29, India’s GDP was estimated at $3.7 trillion, reflecting significant growth from its position as the tenth-largest economy a decade ago, with a GDP of $1.9 trillion. Gold prices experienced volatility throughout January 2024, closing at lower levels. The Federal Reserve's rate decisions played a pivotal role in determining the movement of the Rupee against the dollar. In the third week, gold prices fell as uncertainty surrounded the Federal Reserve's interest rate cut cycle, closing at a round 2036 USD/t.oz on January 31, 2024.

On the energy front, crude oil prices witnessed an upswing in January due to global uncertainties. China's economic slowdown, the collapse of China’s property sector, ongoing conflicts in the Middle East, deteriorating US-Iran conflict conditions, and OPEC's future decisions on production plans all contributed to the volatility in Brent crude prices.

The unveiling of the Interim Budget was met with positive market reactions. The budget's focus on fiscal consolidation, along with increased attention on sectors such as infrastructure, railways, defense, green energy, tourism, agriculture, and electric vehicles (EVs), garnered favourable responses. The Fiscal Deficit target for FY25 was set at 5.1% of GDP, surpassing expectations, while the FY24 target was revised down to 5.8%. Additionally, the capex target of FY25 was increased by 11.1% to ₹11.1 lakh crore. Private capex cycles and rural spending were emphasized in the budget. However, global factors such as corporate earnings, monetary policy outlooks from various central banks worldwide, election years for over half of the world, and ongoing war conflicts affecting commodities, are anticipated to impact markets in the coming months.

Following the Interim Budget, bond yields moved southward, prompting a surge in FPIs towards the debt market. However, the equity markets are expected to remain unstable in the next month due to prevailing global uncertainties. The government's emphasis on fiscal consolidation, coupled with increased focus on key sectors, has resonated positively with market participants, fostering a sense of confidence in the economic trajectory.

The economic landscape of January 2024 showcased the intricate interplay of domestic and global factors. The rollercoaster ride experienced by the markets, from record highs to significant lows, reflected the volatility and uncertainty prevailing in the global economic scenario. As investors navigate through these challenges, the resilience of the Indian economy, strategic policy measures, and global economic dynamics will continue to shape the trajectory of the financial landscape in the coming months.