A significant increase in fiscal expenditure has facilitated India's robust recovery, according to DSP Mutual Fund's September 2024 Netra report, which tracks the latest economic trends and insights, providing an overview of market anomalies through relevant charts. The report emphasizes the need for the private corporate sector and households to take the lead in sustaining this growth momentum.

Netra also highlighted the stretching of an unsettling calm in the markets.  The Nifty 50 TRI index has remarkably maintained a streak of 53 consecutive months without a 5% decline, alongside 13 years without a drop exceeding 10%.

The report also revealed that the momentum factor, which has been the dominant outperformer since the COVID-19 bottom, has started to lose its edge. Meanwhile, the quality factor, which had struggled over the past four years, has begun to see a revival. This shift suggests a potential change in market leadership, which may benefit quality-oriented funds. Quality-oriented active and passive funds could benefit from this change.

The report highlights that while government spending has been pivotal in driving recovery, private corporate and household contributions have lagged. The focus of government expenditure has primarily been on capital investments, which is crucial for future economic growth.

India's per capita consumption is slowing down, approaching lows seen in previous cycles. Given that consumption constitutes nearly 60% of GDP, it is essential for this sector to grow at a pace exceeding GDP growth to stimulate private capital expenditure.

India’s tax collections have shown impressive growth, with gross tax revenue achieving a 5-year CAGR of 14%. This growth is mainly driven by income tax, reflecting a growing dependency on capital gains and stock market performance, which introduces new vulnerabilities.

The banking and financial services sector emerges as a key driver of market earnings in the latest analysis. BFSI companies recorded a 12% increase in PAT growth, significantly outpacing the 4.6% growth observed in non-BFSI Nifty 50 companies. This disparity underscores the sector's pivotal role in India's economic narrative and highlights potential investment opportunities.

"The calm in the markets, marked by an unnerving lack of volatility, is a double-edged sword. While it provides a sense of stability, it also masks underlying risks that could surface unexpectedly, catching investors off guard. To ensure a sustainable recovery, there is a need for private sector and households to take the lead, transforming fiscal stimulus into lasting economic growth" said Sahil Kapoor, Head of Products & Market Strategist, DSP Mutual Fund.

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