After major corrections in October, the market tried to find its feet in November. The advance-decline ratio moved above one after two months of below 1, but market activity was relatively subdued. Six months in a row, the daily average cash volume on the market moved down and barely managed to hold just above Rs 1 lac crores. In June, it crossed Rs 1.50 lac crores. This is despite the number of unique investors in the country increasing. In June, as per NSE number of Unique investors was 9.72 crore, which increased to 10.55 crore by October, but volume moved down, clearly suggesting that retail investors’ enthusiasm has come down a bit to trade daily. Please note that retail investors account for 35 per cent of cash volume on NSE and Prop book about 29 per cent- totalling 64 per cent.
Investor enthusiasm has taken a back seat due to the more than 30 per cent fall in share prices of many companies (especially mid- and small-caps). The sudden drop in share prices has surprised many investors, so they have decided to take it more cautiously. SEBI measures to reduce speculative elements also helped.
GDP GROWTH BELOW ESTIMATE
News flow is not helping to lift market sentiments. India’s poor GDP growth has raised concerns about what kind of growth India can achieve in FY2025. RBI’s GDP projection of 7.2 per cent needs to be revisited, as in Q1, GDP grew by 6.7 per cent, and in Q2, it grew by 5.4 per cent. This is the fourth quarter in a row where sequential GDP growth is lower.
With government capex not fully utilised, many agencies have scaled down India’s GDP for the current year. The big worry is consumption, which has taken a huge beating, and that’s where the government has to think about how it can revive it. While great hope exists during the marriage season, we need a more sustainable consumption pattern than sporadic growth.
BUDGET CAN LIFT ECONOMY
There are two big events that the government can utilise to spur growth. The Budget is now less than two months away. The government can put more money in the hands of the taxpayers to revive the growth. At the same time, we need to generate more employment that can help income and, in turn, consumption. The government capex of Rs 11.11 lac crore is not going to be spent, and that’s where the government has to see how budget allocations are spent. The lower GDP numbers put pressure on the fiscal deficit target as the denominator shrinks, which could force the government to curtail expenses.
FISCAL DEFICIT TARGET CAN BE RELAXED
India is a growing economy; hence, it’s fine to boost growth if the fiscal deficit targets are relaxed. The world economy situation is quite fluid. On the one hand, the US economy is doing extremely well, but economies like the Eurozone and China are struggling. The global growth that we saw post covid has now become uneven. With Trump winning the US presidential election one can expect more uncertainty for the world economy. That’s where we need the government to do heavy lifting. The slowing economy will further defer capex plans from the private sector, as historical data suggest that private capex booms when the economy sees sustained growth over a few years. Slower growth put seeds of doubt in the private entrepurnuers.
RBI NEEDS TO REVIVE CREDIT GROWTH
Another lever is monetary policy. Due to higher inflation and pressure on the rupee, it’s unlikely that the RBI will cut interest rates on Friday, December 6th. However, one can expect at least some relief on the CRR front. The RBI should cut interest rates post-budget to revive consumption and capex cycles. Also, credit growth has come down. The RBI should take policy measures to revive credit growth.
IS SANTA RALLY IN THE OFFING?
Coming to the market, we are just one month away from the end of 2024. Normally, we see the Santa rally, but we may miss it this time due to dynamic market scenarios. While India’s growth story looks extremely good in the medium to long term, we must immediately ensure we bring the consumption and capex cycle back into the system. Rural growth is holding well, but we need urban growth. Fortunately, the market has navigated negative news quite well. That shows that investors behaved more maturely rather than panicking on negative news.