On the strength of significant FPI inflows, Indian markets continued to rise throughout the month. Markets increased regardless of capitalization or industry. Many equity markets experienced gains globally as well. Lower energy prices and the perception that the Fed's tightening cycle is about to come to an end may be contributing factors to the markets' current buoyancy. The month's news coverage was also dominated by concerns about the US debt ceiling, which were ultimately resolved to everyone's satisfaction by extending the cap and deadline to January 2025.

From the top-down perspective of a global investor, India's macroeconomic outlook has improved due to low energy prices, an improved trajectory for inflation, policy rates close to their peak, and fiscal and current accounts that appear to be in good shape. Indian markets are reasonable to reflect the 18-month time correction from a valuation standpoint as well. On the micro front, hopes for a consumer rebound in FY24 are also encouraging as the capex cycle keeps gaining steam. Although there is still some uncertainty surrounding the monsoons, current estimates are still in line with long-term averages.

In terms of the Indian economy, the 6.1% real GDP growth rate in Q4FY23 exceeded market expectations. Investment (GFCF) growth of 8.9% and net exports of 7% drive growth, while private consumption growth of 2.8% was subpar. The Indian economy expanded by 7.2% in FY23, with private consumption increasing by 7.5% (driven by 1HFY23 growth of 13.6%) and investment growing by 11.4% (GFCF).

Given how the Covid pandemic affected the growth trajectory in FY21, the economy has grown at a real GDP rate of 3.4% over the past four years. In contrast to FY22's nominal GDP growth of 18.4%, it was 16.1% in FY2023. In terms of corporate profitability, the Nifty-50 Index's 4QFY23 net profits increased 19% year over year. The Nifty-50's profits increased by 11.5% in FY23. In terms of profitability mix, banks have taken the lead, while metal companies have fared worse than in FY22.

We still hold the opinion that economic growth and fundamentals are still important in the medium and long term, even though Fed policy connections are still important for markets in the short term. Following a strong FY23, real GDP growth expectations for FY24 in India are currently around 6%. The Monsoon season, a slowdown in the global economy (exports), and the stance of the RBI's monetary policy are important variables to watch. As global asset allocators watch how asset allocation across countries plays out, FPI flows are more likely to drive Indian markets in the near future. Up until May, we had a period of consistent outflows, but since then, flows have been quite strong, causing markets to post healthy gains.

We still think that businesses with consistent earnings and cash flow are better investment prospects right now. Any change in RBI's stance on monetary policy could benefit the small cap segment.

In the past, we have observed that markets in a state of consolidation are may be the ideal time to invest in the equity asset class. Large, Mid, and Small as a category offer relatively comparable returns when investing over a period of three to seven years, especially when taking into account associated volatility.

However, mandates like Flexi Cap & Focused are could be best for investors if they trust a fund manager to make decisions in the large, mid, and small-cap segments.