GLOBAL MACRO & MARKETS India’s NSE NIFTY 50 index ended the month with gains of 7.9% MoM in December’2023. The S&P 500 (+4.4%), the Euro Stoxx 50 (+3.2%), and the Morgan Stanley Capital International World (MSCI) (+4.8%), were all positive MoM, as Japan’s Nikkei 225 (-0.1%) remained flat. Among emerging markets indices, the Morgan Stanley Capital International (MSCI) Emerging Markets, and BOVESPA (BVSP) Brazil indices were up in December’2023, by 3.7%, and 5.4% respectively. The Moscow Exchange (MOEX) Russia Index was down by 2.1%, and the HANG SENG (Hong Kong) was flat (+0.0%) over the month. Overall, global equity markets ended with strong gains in 2023. London Metal Exchange (LME) Metals rose sequentially by 3.3% in December’2023., as expectations of China’s recovery remained in line, led by growth-supportive policies. West Texas Intermediate (WTI) and Brent Crude slipped over the month by 5.7% and 7.0% respectively as global oil markets remained volatile based on production caps by The Organization of the Petroleum Exporting Countries (OPEC+) countries and the situation in the Red Sea. The US Dollar index weakened by 2.1% through December’2023, with the Dollar appreciating by 0.5% vis-à-vis Emerging Market currencies and depreciating by 0.2% against the Indian Rupee on the spot market. India 10Y G-Sec yields fell by 10.6 bps, while US 10Y G-Sec yield slid by 44.7 bps, and the German Bund yield fell by 42.3 bps, with rates settling at 7.17%, 3.88% and 2.02% respectively. US yields falling were a function of the Fed’s comments on potential rate cuts in the year 2024, with inflation now expected to moderated sharper than expected previously. Domestic Macro & Markets The S&P BSE SENSEX (+7.8%) rose in December’2023, in tandem with other Indian benchmark indices. S&P BSE Mid-cap and S&P BSE Small-cap indices underperformed the S&P BSE large cap index, posting performances of +7.5% and 5.7% respectively. Sector-wise - Power, Oil & Gas, Metals, and Capital Good indices were the top 4 performers over the month, clocking +18.2%, +12.0%, +11.3%, and +11.3%, respectively. All 13 of BSE’s sectoral indices ended the month in green. Net Foreign Institutional Investors (FII) flows into equities were positive for December’2023(+$5.85Bn, following +1.1Bn in November). Domestic Institutional Investors (DIIs) remained net buyers of Indian equities (+$1.5Bn, from +$1.7 Bn from last month). In CY2023, Net Foreign Institutional Investors (FII) Flows stood at +$21.17Bn, while net Domestic Institutional Investors (DII) investments in the cash markets stood at +$22.33Bn, outpacing Foreign Institutional Investors (FII) investments. India's high frequency data update: Elevated levels of Goods and Services tax (GST) collections, festive season demand uptick, stable retail inflation, deflated input inflation, rising core sector outputs, and elevated credit growth promiseds well for the Indian economy at the end of 2023 Manufacturing Purchasing Managers’ Index (PMI): Manufacturing PMI in December’2023 came in at 54.9, down from 56 in November’2023 and remained in expansion zone for the 30th straight month helped by reduced price pressures. New orders growth has likely moderated further in December’2023. Goods and Services Tax (GST) Collection: Collections of INR 1.65 Tn (10% YoY) in December’2023 concluded the 22nd consecutive month of collections over the INR 1.4 Tn mark, following record collections of INR 1.87 Tn in April’2023. Collections for 7 out of 9 months in this fiscal year crossed INR 1.6 Tn. Rising compliance, increased formalization of the economy, recent festive demand, and improved administrative efficiency have aided higher levels of GST collections despite weakening price pressures. Core sector production: The index of eight core sector industries grew by 7.84% in November’ 2023, against 12.03% jump in October’2023, as unfavourable base effect came into play for India’s eight core sectors. Six of the eight constituent sectors recorded positive YoY growths, with crude oil and cement recording YoY degrowths in November’2023. Credit growth: Banks’ non-food credit in November ’2023 sustained 16.3% yoy growth (20.8% incl. HDFC’s merger). Further, Bank Credit growth reached 20.15% YoY (incl HDFC merger) as of 15th December,2023 against a YoY growth of 17.43% YoY as observed on 16th December,2022. Inflation: November’s 2023 Consumer Price Index (CPI) inflation rate rose to a three-month high, and reached 5.55%, accelerating from 4.87% in October’2023. Food inflation remained elevated and accelerated, coming in at 8.7%. Wholesale Price Index (WPI) inflation turned positive, with the November’2023 print at a +0.26%, 78 bps up from October’2023s at -0.52%, as fuel and manufactured products rose substantially. Trade Deficit: Indian Merchandise Exports recorded a fall of 2.9% YoY to $33.9 Bn in November’2023, while Imports fell by -4.4% YoY to $54.5 Bn. Merchandise trade deficit narrowed to a $20.6 Bn as the global economic situation remained uncertain. Auto sales: Overall Auto Sale delivered mixed performance in the domestic market, despite year ending discounts. 2 wheelers and passenger vehicles continued positive momentum, while commercial vehicles and tractors recorded double digit decline. Exports also remained subdued with various geopolitical issues and currency related uncertainties. Market View • • • • • Equity market sentiment improved supported by some positive news flows emerging both globally and locally. Deceleration in US inflationary expectations relative to past and declining Oil prices despite the production cuts & geopolitical tensions have been important positives. On the domestic front, the activity indicators remained robust driven capex and discretionary consumption. The corporate profits also remained strong primarily driven by benefits of lower input costs. Going forward the sentiment appears to buoyant supported by India’s relatively better macros, possibility of higher foreign flows and the narrative around policy continuity in the upcoming general elections. However, the valuations remain elevated compared to long term averages with lower head room to absorb any disappointments. The geo-political challenges continue and may impact the growth trajectory while domestically the rural demand continues to be tepid. Hence, we believe Large Cap and Large Cap oriented strategies across Large Cap and Flexi/Multi Cap categories appear to be better placed on a risk- reward basis while Asset allocation products can help to manage the downside risks. Events to watch out for in January 2024: Oil Prices: Organization of the Petroleum Exporting Countries (OPEC+) is currently cutting output by 6 Mn BPD (Barrels Per Day), about 6% of global supply. Global oil markets remain volatile, especially as conflict remains between Israel and Hamas, and Russia and Ukraine. US Oil production remains on the rise, but supply side risks remain and key to watch out for. Quarterly Earnings: Q3FY24 earnings season begins with a backdrop of a resilient Indian economy and soft global economy. Global earnings growth will also be keenly watched as market has runup in the last couple of months of 2023. FII Flows: Net Foreign Institutional Investors (FII) Flows into India stood at +$21.17Bn in CY23, one of the highest among emerging markets. December’2023 saw +$5.8 bn of flows into the Indian market. Given Fed easing expectations along with slowing global economy, it would be interesting to observe trend in Foreign Institutional Investors (FII) flows. Festive season demand: India’s private consumption, especially for consumer discretionary goods, as festive and wedding season demand momentum is expected to spillover from December’2023. However, data on autos and select consumer discretionary goods sales in December’2023 remain mixed and therefore requires keen observation in coming weeks. US FOMC Meet: The US Federal Open Market Committee (FOMC) met in 2023 (12-13th December), keeping its policy Federal Funds Rates (FFR) steady at 5.25-5.50% for the third consecutive time, making room for the scope of up to three rate cuts in 2024. Hopes of a “soft landing”, where the dual objectives of low unemployment and low inflation are maintained without a recession, will be dependent on incoming US economy data, where inflation and employment conditions look to be improving. The late January meeting (January 31st ,2024) will be a key monitorable for global equity markets. Monthly Performance for Key Indices: INDEX MSCI WORLD 2021 2022 2023 Oct-23 Nov-23 Dec-23 20.1%-19.5% 21.8%-3.0% 9.2% S&P 500 (US Markets) 26.9%-19.4% 24.2%-2.2% Euro Stoxx 50 MSCI EM 21.0%-11.7% 19.2%-2.7% 8.9%-4.6%-22.4% 7.0%-3.9% 7.9% HANG SENG (Hong Kong) NSE Nifty 50 India LONDON METAL INDEX (LMEX) BRENT CRUDE US DOLLAR INDEX SPOT S&P BSE SENSEX S&P BSE MIDCAP-14.1%-15.5%-13.8%-3.9%-0.4% 24.1% 31.8% 4.3% 7.9% 20.0%-2.8% 5.5%-11.5%-5.6%-3.1% 1.1% 4.8% 4.4% 3.2% 3.7% 0.0% 7.9% 3.3% 50.2% 10.5%-10.3%-8.3%-5.2%-7.0% 6.4% 22.0% 39.2% S&P BSE SMALLCAP 8.2% 4.4% 1.4%-2.1% 18.7% 0.5%-3.0%-3.0% 4.9% 45.5%-3.4% 9.6% 62.8%-1.8% 47.5%-1.7% 9.4% USDINR *Data on calendar year basis. 1.7% 11.3% 0.6% 0.3% 0.2%-2.1% 7.8% 7.5% 5.7%-0.2% Note: Market scenarios are not reliable indicators for current or future performance. The same should not be construed as investment advice or as any research report/research recommendation. Past performance may or may not be sustained in future. Source: Bloomberg Chart of the month : Current Account Deficit (CAD) narrows sharply reducing India’s external sector vulnerabilities. India’s 2QFY24 Current Account Deficit (CAD) moderated to US$8.3 bn (0.96% of GDP, (1QFY24: US$9.2 bn (1.1%). A Widening trade deficit was widely offset by an increase in net invisibles, augmented by technical and software exports. Trailing 12M CAD as % of Nominal GDP also fell to 1% of GDP. T12M CAD as % of Nominal GDP 5.5% P D G f o % s a D A C e t u l o s b A 4.5% 3.5% 2.5% 1.5% 0.5%-0.5% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Source: NIMF Research, CEIC Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 T12M CAD as % of GDP Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Mar-23 Sep-23 Disclaimer: The information herein above is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsors, the Investment Manager, the Trustee or any of their directors, employees, Associates or representatives (‘entities & their Associate”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material, shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Mutual Fund investments are subject to market risks, read all scheme related documents carefully