As we stand at the threshold of 2024, the market outlook reveals a delicate balancing act, influenced by numerous of factors both domestically and globally. While the national budget and the general election stand as major internal elements in 2024, the evolving global economic landscape introduces both opportunities and challenges for investors.
The government’s fiscal deficit, a consequence of pro-growth and subsidy measures during the pandemic, presents a challenge, -6.4% in FY23 and -5.9% estimate FY24. A clear intent will be to curb the deficit coexists with a commitment to adopt growth. Expectation is continuation of the incumbent along with the reformist policies setting the stage for economic expansion with focus on manufacturing.
We forecast Nifty50 to provide a return of ~10 to 12% in CY24, which will be almost in-line with India’s nominal GDP growth forecast for FY25. Return forecast is insignificant as valuations are not inexpensive. However, a more positive sentiment prevails in H1CY24, driven by a pre-election rally led by favourable domestic eco-political condition. While the H2’s performance hinges on election outcomes and the final budget, post the election, which we expect to be positive too.
The ongoing global market performance has got highly buoyant in anticipation of deep reduction in interest rate. Concern is that the rally is stretching ahead, caution is warranted as inflation is forecast to stay above average in 2024. Fed is indicating 3 cuts in 2024 while market is hoping on 4 to 5. The actual number of cuts will depend on the degree of economy and inflation slowdown.
Domestically, the effect of El-Nino is a pressing challenge for India. Food prices are already elevating, impacting CPI and rural demand, which is negative for agriculture and the FMCG sector. RBI will be able to cut only post June 2024.
However, inherent is that India’s economic growth is dynamic, with a long-term base GDP growth forecast of 6 to 7%. And as the global economy stabilizes, India will boost towards 10%, as highly achievable. We expect India’s FY25 real GDP growth to moderate marginally from 7% in FY24 to 6.5% due to slowdown in world GDP growth and El-Nino effect. US GDP is forecast to down to 1.4% in CY24 from 2.6% CY23 but will avoid a recession while Euro region is forecast to stay subdued with 0.8% GDP growth in CY24, as per their respective central banks.
Positive factors include favourable domestic politics, a contrasting global geopolitical risk, ease in bond yields, and moderated crude prices. Conversely, the El-Nino effect, global economic slowdown, continuation of quantitative tightening and high valuation pose as challenges limiting upsides. RBI has noted that the level of unsecured loans in the domestic financial system is a potential risk.
Given the intricate economic & valuation landscape with a decoupling growth in India, a balanced approach to investments is recommended. A multi-asset strategy, encompassing equity, debt, gold, commodities, and cash, is advocated. Optimism towards India’s is underpinned by a strong service sector, fintech advancements, technology, pro-industry policies, and emerging prowess as a global manufacturing hub.
The large-cap IT companies may benefit from cost optimization and new technological deals, caution is advised in the FMCG sector due to rising food prices. Optimism is expressed towards capital goods, infrastructure, cement, renewables, pharma, and chemicals in the long term while valuations are high. Category wise large caps are in a better position compared to mid & small caps due to favourable risk-reward ratio. Earnings growth has been robust while actual stock’s performance has been at low double digit and valuation peers wise are reasonable.
First published in Mint
