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India’s top performing mutual fund schemes in August 2024

3 Sep 2024 , 12:30 PM

INDIAN EQUITY MARKETS TENTATIVE AHEAD OF FED DECISION

The last 3 months have been rather trying for the stock markets. June was volatile due to the election counting and the coalition nature of the central government. The month of July started on a robust note but the Union Budget in the last week proved to be a dampener for the markets. The higher LTCG and STCG on equities, spike in STT on futures & options and the withdrawal of indexation benefits on assets like real estate were dampeners for the market. However, on the positive side, fiscal deficit for FY25 was reduced to 4.9% of GDP. The consumer inflation for July 2024 came in sharply lower at 3.54%, but that was more due to the base effect and markets obviously did not read too much into it. However, the IIP was lower than expected and the GDP growth for Q1FY25 was sharply lower at 6.7%. This is not only lower than the 8% average GDP growth of the previous 4 quarters, but also punches holes in the RBI FY25 GDP growth projection of 7.2%.

The action shifts towards to what the Fed will do in September 2024 and whether the RBI will follow suit on rate cuts. In India, the quarterly result showed signs of higher cost of funds putting pressure on net profits, although operating margins were robust. FPIs infused a modest $873 Million into Indian equities in August 2024; which included $(662) Million outflows from secondary markets and $1,535 Million of inflows into IPOs. FPIs continued to be cautious on Indian equities ahead of the Fed rate decision in September 2024. Key indices closed August 2024 on a positive note. Nifty closed August 2024 with gains of +1.14%, Sensex +0.76%, and Nifty Next 50 +0.66%. The mid-cap index gained +0.50% and while the small cap index +0.89% in August 2024. Despite FPI selling, domestic investors remained net buyers, but institutional appetite was clearly biased towards large caps.

BENCHMARK BOND YIELDS EASE TOWARDS 6.8% MARK

For August 2024, India 10-year bond yields opened at 6.916% and closed lower at 6.863%. In May 2024, we had seen the bond yields dip below 7% after the RBI announced a bumper dividend of ₹2.11 Trillion. However, in last couple of months, the bond yields went above 7% on several occasions; largely on account of the election uncertainty, and apprehensions that the coalition government compulsions could urge the government to be lax on fiscal deficit. In a sense, the full budget put these fears to rest. The full budget presented on July 23, 2024 consciously decided to use the RBI dividend largesse to reduce the fiscal deficit target for FY25 further to 4.9%, despite higher fiscal pressure due to a rising food subsidy bill and signals that the special status demand of Bihar and Andhra Pradesh could put further pressure on the fiscal balance of the government. That has been a big positive.

For now, the action on bond yields shifts to the key macro data flows and the actions of the central banks. CPI inflation came in sharply lower at 3.54% for July 2024. However, the bond markets did not read too much into it as the fall was an outcome of the base effect in food inflation. Bond markets would prefer to see the monsoon impact on agricultural output to get a more secular idea about the direction of inflation. Secondly, bond yields have also been subdued in India on account of expectations that the Fed will cut rates by, at least 25 bps in September 2024. The CME Fedwatch is a lot more aggressive, but for now, the Indian bond markets will give more credence to what the Fed does than to what CME Fedwatch believes. Lastly, there is the expectation that if the Fed cuts rates in September, then the RBI could follow suit in October to give relief to Indian corporates on cost of funds. Here is a quick dekko at how various mutual fund categories performed in August 2024.

Equity Large-Cap Funds