Market Outlook for the month:

Market Outlook for the month:

By Research desk

Market Review: Navigating May 2024’s Mixed Performance and Volatility

In May 2024, the global and domestic markets displayed mixed performance influenced by political events, sectoral dynamics, and market sentiments. The Nifty 50 ended the month on a flat note, showing minimal movement compared to April, while the Nifty Next 50 impressed with a 4.1% return. In the global arena, major indices rebounded strongly, with the S&P 500 delivering a return of 4.8% and the NASDAQ 100 surging by 6.3%. Among emerging markets, Taiwan led with a growth of 5.3%, whereas Brazil was the worst performer, falling by 5.9%. Notably, all developed market indices ended on a positive note.

Crude oil prices decreased by 6% following OPEC+’s announcement of a phased elimination of production cuts starting in October. The gray metal (likely silver) outperformed gold again, surging 17.3% due to rising industrial demand and ongoing geopolitical uncertainties. Monetary policy actions contributed to a consistent drop in India’s annual retail inflation, reaching 4.83% in April 2024. Foreign Institutional Investors (FIIs) were net sellers with a total outflow of Rs. 43,214.28. Meanwhile, Domestic Institutional Investors (DIIs) remained net buyers, with an inflow of Rs. 55,733.04 crores.

The Indian stock market experienced significant volatility marked by record highs in the run-up to the elections and notable corrections following the election results. The market nosedived to a four-year low as investor sentiment was dented by the unexpected outcome, where the Modi-led Bharatiya Janata Party failed to secure a clear majority in early June 2024.

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Sectoral performance

In May 2024, the metal sector continued its upward trajectory, surging by 6% and leading as the top performer. In contrast, the IT sector continued its poor performance with a 2.5% decline. All factor-based investment strategies, except low volatility, exhibited positive returns, with the Quality factor taking the lead with a notable increase of 7.4%. The Industrials, Consumer Discretionary, and Utilities sectors were the top three contributors, collectively resulting in a positive impact of 1.2% on the Nifty 500. However, the Financial Services sector, previously the highest contributor, dragged returns down by 0.5%.

In the following sections, we provide a comprehensive examination of the nuanced dynamics and detailed insights into the performance of some major sectors:


In May 2024, the auto sector showed varied performance across different segments, influenced by both domestic and export markets. The domestic Passenger Vehicle (PV) sales increased by 6% year-on-year (YoY) and 4% month-on-month (MoM), primarily driven by strong SUV volumes. However, this growth was partially offset by weaker performance in entry-level cars and a decline in exports. While the entry-level car segment faced a 7% YoY decline, the SUV segment saw a significant 17% YoY growth, resulting in an overall PV sales decline of 2% YoY, despite a 3.7% YoY increase in domestic sales. Other manufacturers reported varying degrees of YoY growth, while some experienced marginal gains or declines.

The Commercial Vehicle (CV) sector saw a modest 3% YoY increase in domestic dispatches, remaining flat on a MoM basis. Growth in this segment was driven by high volumes in the bus segment, with substantial YoY growth rates. However, other areas of the CV market experienced minor fluctuations, with some manufacturers reporting declines. The outlook for CVs in the fiscal year 2025 suggests low single-digit growth due to factors such as the high-base effect, low fleet capacity utilization, and moderate replacement demand in the Medium and Heavy Commercial Vehicle truck segment.

In the two-wheeler (2W) segment, domestic dispatches grew by 10% YoY but declined 8% MoM. Significant YoY growth was observed in some manufacturers, while others faced YoY declines. Export volumes for the industry increased by 22% YoY but saw a 2% MoM decline. Factors driving domestic demand include pent-up rural demand, the marriage season, and new model launches. A revival in exports will be crucial for the sector’s performance in fiscal year 2025.

The tractor industry experienced flat YoY domestic sales in May 2024, with a 4% MoM growth. Challenges such as low reservoir water levels and heatwaves in certain regions contributed to a cautious outlook for this segment. However, with expectations of an above-average monsoon in the second half of fiscal year 2025, a gradual demand recovery is anticipated.


In May 2024, the chemical sector exhibited relative stability in pricing on a month-on-month (MoM) basis, despite a decline in crude oil prices by approximately 3%. The agrochemical segment faced pressure due to Chinese-led dumping and inventory level challenges, keeping prices within a narrow range. Overall, pricing for most chemicals appeared to have formed a stable base, even though global demand remained subdued due to various macroeconomic and geopolitical factors. A modest recovery is anticipated in the fiscal year 2025.

Companies advancing in scale and complexity within the value chain are expected to benefit significantly in the long term. The market witnessed notable price changes for specific chemicals: Acrylic Acid and Phthalic Anhydride saw sharp increases of 21% and 10% MoM, respectively, which positively impacted major manufacturers. Caustic Soda Lye prices increased by 7% MoM, while Benzene and Isopropyl Alcohol prices decreased by 9% and 7% MoM, respectively.

Looking ahead, the commodity chemicals segment is expected to remain range-bound due to stable domestic demand. However, Chinese competition will likely continue to exert pricing pressure, especially on commodity chemicals. Companies that focus on delivering value-added products and moving up the value chain in terms of scale and complexity are expected to perform better in the long term compared to those that rely solely on commodity chemicals.


The banking sector has demonstrated resilience and operational strength in recent times, surpassing expectations with robust performance and tighter control over credit costs. Key drivers of credit growth, including retail and SME segments, are expected to continue their momentum, buoyed by ongoing capital expenditure across industries. Despite the anticipation of a moderation in credit growth compared to the previous fiscal year, ranging between 14.0% to 15.0%, the sector remains optimistic about its prospects. Net interest margins (NIMs) are projected to witness mixed performance in the first half of the upcoming fiscal year but are anticipated to stabilize later, assuming interest rates remain unchanged.

Asset quality is expected to remain strong, supported by higher contingent provision buffers, improved provision coverage ratio (PCR), adequate capitalization, and a modest level of stressed accounts. While there is pressure on NIMs due to increased deposit rates and rising funding costs, many banks have seen sequential improvement, driven by stable cost of funds. Furthermore, asset quality has improved, with core non-performing assets remaining stable across banks, reflecting healthy recoveries, write-offs, and moderation of restructured and special mention accounts. Overall, the banking sector is poised for steady growth and resilience in the near term.


The FMCG sector anticipates several factors influencing its performance in the near future. Forecasts predict above-normal rainfall during the monsoon season, potentially boosting rural growth, which has been eagerly awaited. Stable headline inflation in the previous fiscal year and an estimated lower inflation rate for the upcoming year are expected to further support rural demand. Early signs of growth have emerged in rural areas, driven by easing inflation and increased government spending.

However, challenges persist, including heightened competition from smaller and regional players, particularly as raw material prices ease. Despite this, gross margins are improving as key raw material prices remain stable, offering a positive outlook. While companies have reported subdued performance due to intensified competition affecting volume growth, there is optimism for recovery, especially in rural areas, driven by various factors including easing inflation and increased government spending.

However, full rural recovery may take additional quarters. Companies expect gradual volume growth recovery and continued improvement in gross margins. Yet, EBITDA margins have shown slower recovery due to increased advertising spending aimed at regaining market share. Despite short-term impacts on margins, such investments are viewed favorably for long-term gains in market share.

Important events & updates

A few important events of the last month and upcoming ones are as below:

  1. In June 2024, the Reserve Bank of India (RBI) maintained its benchmark policy repo rate at 6.5% for the eighth consecutive meeting, in line with expectations. This decision was made amidst persistent price pressures, with the economy demonstrating resilience. Annual inflation stood at 4.85% in April 2024, nearly unchanged from March, remaining within the RBI’s target range of 2-6% in the medium term. RBI Governor Shaktikanta Das acknowledged ongoing uncertainties affecting the inflation outlook, particularly due to deflation in fuel prices, while food inflation remained elevated. Additionally, the central bank revised its economic growth forecast for fiscal year 2025 to 7.2% from 7%.
  2. The Indian economy surged by 7.8% compared to the corresponding period of the previous year in the quarter ending March of 2024, significantly surpassing initial forecasts of a 6.7% expansion. This robust growth further extends the trend of strong economic performance for India.
  3. Deposit growth in India stood at 13.3% in May 2024, down slightly from 13.6% in the previous release.
  4. In April 2024, infrastructure output in India recorded a 6.2% year-on-year increase, following an upwardly revised 6% rise in March.
  5. In May 2024, the HSBC India Manufacturing PMI registered at 57.5, falling below preliminary estimates and market forecasts of 58.4. This figure marked a decrease from 58.8 in the previous month, indicating a slower yet notable enhancement in the country’s manufacturing sector. The moderation in the index was attributed to a softer increase in new orders and output.
  6. In May 2024, the HSBC India Services PMI was revised lower to 60.4 from the preliminary estimate of 61.4 and the prior month’s final reading of 60.8. Despite the deceleration, it marked the 34th consecutive month of expansion, albeit at the slowest pace since December 2023. New orders continued to rise substantially, supported by favorable economic conditions and successful advertising, although growth was tempered by fierce competition and a severe heatwave.
  7. In May 2024, the HSBC India Composite PMI decreased to 60.5, down from the initial estimate of 61.7 and April’s reading of 61.5. Despite this, it still indicated robust growth, marking the slowest expansion in the Indian private sector since December 2023.

Debt outlook:

May was a positive month for the debt market, with the 10-year bond yield falling below 7%, recovering all losses from the previous month. The prospect of a stable government and lower inflation increases the likelihood of the Reserve Bank of India (RBI) cutting rates in the near future. Several factors contributed to the drop in bond yields, including a partial reversal in US Treasury yields, a decline in crude oil prices, softer domestic inflation, the government’s bond buyback announcement, and a larger-than-expected RBI dividend.

The outlook for the debt market is favorable due to low inflation and an accommodative monetary policy. The government’s plan to reduce its deficit to 4.5% of GDP by FY26 is expected to lead to a lower supply of government bonds. Simultaneously, demand from insurance companies, pensions, and provident funds is growing at a solid pace.

The RBI may wait for the US Federal Reserve to change its stance before cutting rates, which could increase demand for long-term bonds. We expect 10-year bond yields to reach 6.25%-6.50% by the end of the year. Short-term bond yields might also decrease because of the RBI’s plan to infuse liquidity into the system. Overall, we anticipate a significant decrease in bond yields over the next 6 to 9 months, driven by favorable inflation trends, accommodative monetary policy, and strategic government fiscal measures.

Fundamental outlook: 

The fundamental outlook for Indian equities shines brightly amidst the backdrop of global economic volatility. India stands out as a beacon of stability and growth among emerging markets, buoyed by a robust corporate sector. Strong corporate earnings have been a hallmark of Indian companies, reflecting their adaptability and resilience in the face of challenges. Moreover, access to capital markets has empowered Indian corporates to raise funds, optimize their capital structures, and enhance their competitive positions.

Under the visionary leadership of Modi 3.0, the government’s unwavering focus on infrastructure development, job creation, and investment-led growth bodes well for the economy. This policy continuity instills confidence among investors, fostering an environment conducive to sustained economic expansion. Furthermore, improvements in profitability and asset quality across various sectors, including banking and manufacturing, underscore the underlying strength of Indian corporates.

Technical outlook.

From a technical perspective, Indian equities exhibit a bullish trend, reflecting the underlying strength of the economy and corporate fundamentals. The benchmark indices, such as the Nifty 50 and Sensex, have displayed robust upward momentum, punctuated by periodic corrections that offer entry opportunities for discerning investors. Technical analysis reveals key resistance and support levels at around 23,450 and 22,700 levels respectively, providing valuable insights for investors seeking to optimize their investment strategies.

Moreover, quantitative metrics such as liquidity levels, as measured by system liquidity indicators, and RBI policy decisions serve as critical indicators of market dynamics. Fluctuations in system liquidity influence investor sentiment and market behavior, while RBI’s strategic interventions, including adjustments in interest rates and reserve requirements, have ripple effects on market liquidity and investment patterns.

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Outlook for the Global Market

US Market

The S&P 500 has resumed its upward trajectory following strong first-quarter earnings, calming investor concerns about inflation and potential delays in Federal Reserve interest rate adjustments. Despite worries about slowing economic growth and weakening consumer sentiment, the index gained 4.2% in May and is up 10% year-to-date. Investors seem optimistic about lower inflation, accelerated earnings growth, and anticipated interest rate cuts in the latter part of 2024, shrugging off mixed economic data.

Federal Reserve Chair Jerome Powell, speaking to the Foreign Bankers’ Association in May, acknowledged the challenges in reaching the 2% inflation target. Powell noted that recent inflation readings have exceeded expectations, suggesting a need for patience and maintaining current interest rates. The Federal Open Market Committee has kept its interest rate target range between 5.25% and 5.5% since July 2023, marking its highest range since 2001. Powell emphasized a cautious approach to further rate hikes, advocating for continued support of current rates to sustain economic stability.

The upcoming months will be crucial in determining the Federal Reserve’s ability to manage a smooth transition for the U.S. economy. Despite concerns, the labor market has shown resilience, with the April job additions reaching 175,000 and wages rising by 3.9% year-over-year, while the unemployment rate remains historically low at 3.9%.


The Eurozone is gearing up for its first interest rate cuts in almost five years by the European Central Bank, expected to provide a much-needed boost to the economy. While the scale of the stimulus depends on the extent of borrowing cost reductions, persistently high inflation, driven by rapid wage growth, may limit the number of rate cuts. Market consensus anticipates an initial rate cut, with investors eagerly awaiting signals from ECB leadership on future monetary policy.

These rate adjustments are poised to reinvigorate housing markets, business investments, and consumer spending, following the ECB’s record-high deposit rate last year, which curbed economic activity in response to significant price surges.

In the first quarter of this year, the Eurozone displayed signs of recovery, with GDP rising by 0.3%, ending a period of stagnation. This growth primarily reflects the subsiding impact of energy and food price shocks, alongside a resurgence in global trade. Anticipation of rate cuts has already contributed to reductions in mortgage and corporate loan costs.

In Germany, house prices, which declined after ECB rate increases in 2022, are now stabilizing as mortgage rates have dropped, fostering a favorable environment for real estate.

Although inflation has been on a steady decline since its peak in 2022, recent data shows a slight acceleration, reaching 2.6% in May. The Eurozone’s robust labor market continues to exert upward pressure on prices, with wage growth rebounding to a record pace in the first quarter and unemployment reaching a new low in April.

Given strong economic indicators, economists expect upward revisions to the ECB’s inflation and GDP growth forecasts for the year. Additionally, with indications that the Federal Reserve may delay rate cuts due to a resilient U.S. economy, investors are adjusting their expectations, anticipating fewer rate cuts from the ECB in the coming year.

Outlook for Gold

Gold prices surged to an all-time high of $2,454.20 on May 20th but have since retreated, though they remain historically elevated. Forecasts suggest gold prices will likely move sideways with occasional fluctuations and a downward bias in the coming months. However, a resurgence in strength is anticipated during the final four months of the year, possibly leading to new peaks.

Recent price movements have seen gold trading largely between $2,285 and $2,450 over the past couple of months, a trend expected to persist throughout the summer. Breaking out of this range to the upside is unlikely until September or beyond, barring significant new political or economic risks. Economic stability, coupled with seasonal downturns during the summer, may impede substantial price increases.

Despite an overall healthy economic environment, intermittent economic indicators hint at underlying concerns. Additionally, the current higher interest rate environment and prevailing political uncertainties may deter gold prices from experiencing significant or sustained declines below the $2,285 threshold.

What should Investors do?

After a thorough examination of the market data discussed, our recommendation is in sync with the prevailing market dynamics. The global and domestic markets exhibit volatility, amidst uncertainties concerning inflation, liquidity, and economic growth, signaling a need for cautious investor approach.

Despite global turbulence, the Indian economy’s resilience shines through strong growth and stable corporate earnings, positioning it favorably among emerging markets. Yet, inflationary pressures, crude oil price fluctuations, and liquidity concerns necessitate a prudent investment approach.

In this scenario, market sentiment tends towards Quality and Low Volatility stocks, with a preference for defensive options. This inclination is supported by data reflecting improved profitability, asset quality, and corporate balance sheets across sectors. Additionally, under Modi 3.0, stable policies and infrastructure-focused growth initiatives bolster market resilience.

Our outlook for Indian equities remains optimistic, with occasional corrections (<6%-7%) offering entry points for investors. We advise staying invested, capitalizing on market dips to acquire stakes in high-quality firms. Anticipated fund flows towards Largecaps in the near term reinforce this strategy.Based on current data, we project the Indian market to hit the 24k range by December this year and around 24.5k by March 2025, barring any major macroeconomic shifts.


This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.

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