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Market touching new highs after rising GDP and PMI data.

Market touching new highs after rising GDP and PMI data

Markets have shown a signal of strength as major indices like the Nifty 50, Nifty Midcap, and small cap 100 made new highs, and behind these highs lie various factors. Factors that contributed to such thrust are higher-than-expected GDP growth in the September quarter, the economy growing by 7.6%, higher than the 6.8% forecast in Reuters and the 6.5% of the RBI’s estimate, a rise in PMI numbers, exit polls, and return on foreign portfolio investor (FPI) inflows.

The five state elections are seen as a precursor to the 2024 general elections, with exit polls being a better indicator of results than opinion polls. A decisive win for the sitting ruling party in the center, the BJP, will reinforce the party's position in the elections. Most exit polls show the BJP ahead in Rajasthan and Madhya Pradesh, while Chhattisgarh and Telangana appear to have an edge for the Congress. Exit polls are positive news for the markets. Since the exit polls are not to be taken at face value and are not definitive, if the polls come true in the coming weekend, it might further add fuel to the fire.

Inflation fell to a four-month low of 4.87% in October but is expected to remain above the RBI's 4% target for the next two years. Markets anticipate the RBI to remain hawkish in its upcoming policy and will keep its key interest rate unchanged at 6.50% for a fifth consecutive meeting.

India's manufacturing sector has shown robust growth, as indicated by the recent rise in the Purchasing Managers' Index (PMI) for November. The PMI, a critical indicator of economic health, rose to 56.0, indicating a m-o-m expansion of factory activity. This uptick to 56.0 signals growth in activity and improvement in business conditions. The PMI is calculated based on surveys of private sector companies and covers variables such as new orders, inventory levels, production, supplier deliveries, and the employment environment.

The growth outlook for India remains positive, with government capex initiatives likely to stimulate consumption at the bottom of the pyramid. The agriculture, livestock, forestry, and fishing industries recorded 1.2% growth in Q2 FY24, while mining and quarrying grew 10% and the manufacturing sector grew 13.9%. Consumption remains robust, primarily driven by urban residents, and the government's final consumption expenditure grew by 12.4%. Exports witnessed a growth of 4.32% on an annual basis in Q2 FY24. Headline growth is likely to remain resilient, with utilities, services, and construction showing robust growth. India remains the world's fastest-growing major economy, with rapid falling inflation and faster-than-expected growth being good news for financial markets. The expectation of the peak of the interest rate cycle in the U.S. has facilitated the move of flows towards more risky assets, especially India.

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