CareEdge Financial Conditions Index rose to 44.6 in December

CareEdge Financial Index: The CareEdge Financial Conditions Index rose significantly to 44.6 in December 2023, closer to the +1 standard deviation mark, from 35.7 in November 2023.  The rise of India’s FCI in December was primarily due to improvements in external conditions, the strong performance of equity markets, and the resilient Indian rupee, the CareEdge Finacial Index showed today. CareEdge Financial Conditions Index (FCI), which takes into consideration 28 macroeconomic and financial indicators shows substantial improvement in India’s financial conditions in December 2023.  

External Environment Remained Favourable 

CareEdge Financial Conditions Index (FCI), which takes into consideration 28 macroeconomic and financial indicators shows substantial improvement in India’s financial conditions in December 2023.  The CareEdge Financial Conditions Index rose significantly to 44.6 in December 2023, closer to the +1 standard deviation mark, from 35.7 in November 2023.  The rise of India’s FCI in December was primarily due to improvements in external conditions, the strong performance of equity markets, and the resilient Indian rupee. However, the financial conditions in the debt market and money market remained tight marked by a rise in deficit in systemic liquidity and widened credit spreads.

Equity Market Bounces Back in December

Sensex rose by 18 per cent YoY in December which is the strongest growth since June 2023. The strong rally in the equity market has driven the PE ratio to 25.6, suggesting strong valuations.  The recent upswing in the market can be ascribed to healthy domestic macro numbers, a moderation in inflationary pressures in the US, and expectations of potential rate cuts of major central banks. Additionally, a decline in US bond yields and the weakening of the dollar, coupled with increased buying activity by foreign portfolio investors (FPIs), have contributed to this positive momentum.  The equity market witnessed the strongest-ever monthly FPI inflows since Dec 2020 with an inflow of  Rs 7.9 trillion on the back of expectations of a turnaround in the global monetary policy cycle and the recent state election victory of the ruling party.