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India’s top performing mutual fund schemes in September 2024

2 Oct 2024 , 09:19 AM

AFTER THE FED RATE CUT, WHAT WILL THE RBI DO?

When we had written our August report at the start of September, the global markets were still quite tentative about what the Fed would do. That has been largely set to rest. On September 18, 2024, the Fed went ahead and aggressively cut rates by 50 basis points. That is not all. The Federal Open Markets Committee (FOMC) dot plot projections are now hinting at another 50 bps rate cut by the end of December 2024 and another 100 bps in 2025. Effectively, the US Fed rates would be lower by 200 basis points by end of calendar 2025 and if you go by the expectations of the CME Fedwatch, even deeper rate cuts are possible. That brings us to the big question; what will the RBI do in its October 2024 policy?

For now, the RBI has not given any indications on its rates trajectory, but there are strong reasons for the RBI to consider a rate cut in October. Firstly, with the Fed having cut rates by 50 bps, the RBI would not want to risk monetary divergence at this point. Secondly, the real interest rates in India are already high at over 2% and have enough room to come down by at least 100 bps from these levels. With consumer inflation below 4%, the RBI has enough leeway to cut rates. Thirdly, the repo rates at 6.5% are a full 135 bps above the pre-COVID levels, which is not justifiable considering growth has recovered sharply since then. Lastly, with core sector growth dipping into negative, lower raters may come as an antidote.

As we look back at the month of September 2024, it is the spike in FPI flows that stands out. Equities saw FPI infusion of $6.89 Billion in September 2024, which comprised of $5.56 Billion of secondary market investments and IPO investments of $1.33 Billion in the month of September 2024 on a net basis. On top of that, FPIs infused a further $4.27 Billion into debt, taking their total infusion for September to $11.16 Billion. Not surprisingly, frontline indices closed September 2024 on a positive note. Nifty closed the month with gains of +2.28%, Sensex up +2.35%, and Nifty Next 50 gaining +2.41%. The mid-cap index gained +1.46% and while the small cap index closed -0.66% lower in September 2024.

BENCHMARK BOND YIELDS STAY FLAT IN SEPTEMBER 2024

For September 2024, India 10-year bond yields opened at 6.876% and closed marginally lower at 6.847%. In the month of September, the bond yields did not dip too sharply because most of the action had happened in August after Jerome Powell had hinted at near certain rate cuts at the Jackson Hole Symposium. Also, there was no indication from the RBI as to whether they would follow suit and cut rates. That had kept the bond yields tentative. However, there have been other triggers that have been broadly indicative of lower bond yields. Firstly, the consumer inflation for the last two months have been well below the RBI target of 4%. Secondly, the monsoons this year have been 107% of the long period average (LPA), which means record Kharif output. Thirdly, the second half of FY25 has set a very conservative borrowing target of ₹6.61 Trillion, reinforcing the view that fiscal deficit will be well and truly in check.

Here is a quick dekko at how various mutual fund categories performed in September 2024.

Equity Large-Cap Funds