India’s Equity Market Performance in August 2024

In August 2024, India’s equity market showed a mixed performance with the MSCI India Index delivering a positive return of 0.9%.

Despite this gain, the index underperformed the MSCI Emerging Markets (EM) Index by 0.5 percentage points, with India ranking 15th out of 24 EM countries, as noted by analysts from Morgan Stanley. This was a decline from July where India ranked 10th among EM peers. The benchmark Sensex index rose by 0.8%, slightly lagging behind the Mid-cap and Small-cap indices, which outperformed by 10 bps and 40 bps, respectively.

“All indices made fresh life-time highs,” stated the analysts, highlighting a strong yet relatively muted market momentum compared to the broader EM landscape.

In August, defensive sectors led the Indian market, with seven out of ten sectors posting positive absolute returns. Communication Services and Healthcare emerged as the top performers, driven by their defensive nature amid broader market uncertainties. The Technology sector, though not leading in absolute gains, outperformed its EM counterparts, showcasing strong investor confidence in India’s tech landscape.

“Utilities was the worst-performing sector,” according to the analysts, reflecting ongoing challenges in the energy and utilities space due to global macroeconomic pressures and fluctuating commodity prices.

Institutional buying in India remained robust, with total inflows exceeding $42 billion for 2024. In August alone, institutional inflows totaled $7 billion, fueled by both domestic and foreign portfolio investors. Foreign Portfolio Investors (FPIs) added $1.2 billion in the cash market and $256 million in the futures market, while also maintaining buying momentum in the debt market with inflows of $2.1 billion. Domestic institutions were even more active, with acquisitions amounting to $5.8 billion.

Market breadth—a vital indicator of market health—remained strong, with 94% of stocks trading above their 200-day moving averages, consistent with July levels. The advance-decline line increased by 2% month-on-month.

Despite solid market breadth, volatility remained low, as the VIX decreased by 1% MoM, and implied volatility decreased by 2%. However, the put-call ratio rose by 11%, indicating a modest uptick in bearish sentiment among traders.

The 12-month forward price-to-earnings ratio rose to 24.3x, suggesting continued investor optimism despite relative underperformance. However, the relative P/E fell on a month-on-month basis to 1.73x, indicating that Indian equities became slightly less expensive relative to the broader EM universe. The price-to-book ratio also increased to 4.4x.

On the currency front, the Indian Rupee depreciated by 0.2% against the US Dollar and 2.4% against the Euro in August. Year-to-date, the INR has depreciated by 0.8% against the USD and 0.6% against the EUR.

India’s bond market showcased signs of easing, with the 91-day yield inching up by just 1 bps in August, while the 10-year Treasury yield fell by 6 bps. This decline in long-term yields contributed to a slight flattening of the yield curve, now standing 23 bps above the March 2024 lows.

In the commodities sector, oil prices decreased by 2% month-on-month in INR terms, attributed to global supply factors and demand concerns. Conversely, gold prices increased by 3% in USD terms, reflecting heightened investor interest in safe-haven assets amidst ongoing global uncertainties.