Investing.com – In August 2024, the Indian stock market saw mixed performance, with the MSCI India Index returning a positive 0.9%.
However, despite the gain, the index underperformed the emerging markets index by about 0.5 percentage points, putting India at 15th out of 24 emerging markets, Morgan Stanley analysts said in a note dated Monday.
That was down from July, when India ranked 10th among emerging market peers. The benchmark Sensex rose 0.8% but lagged slightly behind the mid-cap and small-cap indices, which outperformed by about 10 basis points and 40 basis points, respectively.
“All indicators are at new record highs,” analysts said, pointing to strong but relatively muted momentum in the market compared to the broader emerging markets landscape.
In August, defensive sectors led the Indian market, with seven out of ten sectors recording positive absolute returns. Telecom services and healthcare were among the best performing sectors, driven by their defensive nature amid broader market uncertainty.
Although the technology sector did not lead the absolute gains, it significantly outperformed its emerging market peers, reflecting strong investor confidence in India’s technology sector compared to the broader emerging market landscape.
Analysts said the utilities sector was the worst performer, both in absolute terms and relative to emerging market peers. The sector’s weak performance reflects ongoing challenges in the energy and utilities space, exacerbated by global macroeconomic pressures and volatile commodity prices.
Institutional buying in India has remained strong, with total inflows exceeding USD 42 billion for 2024. In August alone, institutional inflows reached USD 7 billion, driven by domestic and foreign investors.
Foreign direct investment institutions 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 more active, with total acquisitions reaching $5.8 billion during the month.
Market breadth, a key indicator of market health, remained strong, with 94% of stocks trading above their 200-day moving averages, in line with July levels. The advance-decline line, another measure of breadth, rose 2% month-over-month.
Despite this strong market breadth, volatility remained low, down 1% on a monthly basis, and implied volatility fell 2%. However, the buy-sell ratio rose 11%, indicating a modest increase in bearish sentiment among traders.
The forward 12-month forward price-to-earnings ratio rose to 24.3x, reflecting continued investor optimism despite the relatively weak performance. However, the relative price-to-earnings multiple declined on a monthly basis to 1.73x, suggesting that Indian equities have become slightly less expensive relative to the broader emerging market universe. The price-to-book ratio also increased, rising 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 Indian rupee has depreciated by 0.8% against the US dollar and 0.6% against the euro.
The Indian bond market has shown signs of slowing down, with the yield on the 91-day note rising just 1 basis point in August, while it fell 6 basis points. This decline in long-term yields has contributed to a slight flattening of the yield curve, which now stands 23 basis points above its March 2024 low.
In the commodities sector, oil prices fell 2% MoM in Indian rupee terms, driven by global supply factors and demand concerns. In contrast, gold prices rose 3% in US dollar terms, reflecting increased investor interest in safe-haven assets amid ongoing global uncertainty.
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