How the Indian market looks in 2024?

• The current uptrend in the market is expected to sustain till the parliamentary elections results are announced, with a fluctuation of +/- 5% on either side. When the election results are announced, the market may hit an all-time high.
• Estimated EPS for Nifty 50 for FY25: 1100 – considering the current valuation of PE at 23x, we can expect the Nifty 50 to reach 25K in FY25. However, predicting the market is difficult, but we are of the view that the market may reach 24K - 26K level this year.
• Regarding Sensex, we are of the view that it may touch 80K this year based on the above parameters.

• The above expectations are based on the projected earnings growth and any negative surprises/downgrade in the corporate earnings will drag the market down.
• Lack of inflows from both FPIs and DIIs will impact the market.
• A spike in valuation without the support of earnings / due to extreme euphoria can trigger a market correction.
• The upcoming general election result will be crucial, and we may observe volatility in the market this year.
• Negative sentiments due to a slowdown in the US economy.
• Further, it will dampen the demand and it may impact the Indian equity due to the correlation of our exports to the US. Any supply-side issues like the Red Sea issue may hurt the equity market.
• Geopolitical risks like escalation in the conflict between Russia-Ukraine, Israel-Hamas, and chaos in the Middle East are threats to the equity market.

• As per Dot Plots, widely tracked by the markets, there would likely be 3 rate cuts in the year.
• The PCE (Private consumer expenditure) has reached below 2% indicating a widespread demand disruption in other consumption items. Consequently, the inflation has cooled off. This is one of the key indicators tracked by the FED and a key reason for rate cuts.
• Additionally, the interest rate being at 5.25% - 5.5% creates an additional burden of debt obligation on the US government and it is difficult for any government to continue bearing high obligations for a long period. Other indicators being in control, and its Debt to GDP at 130%, the US government may decide to cut rates to reduce its debt obligations.
• Cutting interest rates would relieve the Americans from the tough borrowing costs leading to higher foreign investment in Indian markets.

• It is very important to note that despite the high-interest rate of 5.5%, the US economy is quite strong, and now inflation is also under control.
• Other indicators like GDP growth and unemployment job data are quite strong.
• Therefore, the FED might change its stance to an accommodative stance. Though there is no clear guidance and it is very unlikely, but FED may decide that it is not necessary to cut rates until there are concerns about inflation or economic growth in the US.

• In our 2023 market outlook, we mentioned that FED may reduce the size of its balance sheet to $7 trillion. It was at $7.7 Tn at the end of Dec-2023.
• It’s quite sure that quantitative tightening will continue soon to suck the extra liquidity which was infused as a part of covid relief.

• In case of any major financial crisis, the FED may provide financial stability by infusing more liquidity. Last year, we have seen this during the crisis of Silicon Valley Bank.

• Currently, the Indian and US economies are running on their strengths and need no stimulators to boost the economy. At present, our interest rate is at 6.5% and delivering 7% real GDP growth.
• Given a fiscal deficit of 6% of GDP and government spending on CapEx, there is room for monetary policy to remain unchanged. The RBI may not need to cut rates unless economic indicators signal weakening demand or negative surprises in corporate earnings.
• Given the interest rate of 6.5%, the government faces increased debt obligations. While other indicators remain stable, the government may opt to reduce its debt burden by cutting rates. This could potentially lead to a rate cut of 25-50 bps in H2CY2024.

1. An extraordinary spike in the crude oil price.
2. Failure in the upcoming monsoon.

These events can cause inflation to move up drastically and, in such cases, RBI may decide to increase the rates further.

• Finance, Auto and Domestic CapEx oriented companies are expected to do well in the year 2024.
• Banking Sector: The banking sector is currently trading at a lower level of 5-7-year average valuation on PB basis, indicating inexpensive pricing. Moreover, the sector possesses strong balance sheets and is devoid of asset quality issues, making it an attractive prospect for investment.
• Auto sector: The premiumization trend in Indian Auto (SUVs and premium bikes) would support the demand revival in the Auto Sector.
• IT Sector: The rate cuts in the US would fuel the IT sector to perform at its best as the discretionary spending in the US would repeat.
• Pharma Sector: It is expected that the price erosion in US Pharma will be at the bottom which will bring some stability to the Indian Pharma sector as well.
• CapEx-Oriented Companies: The Government’s support towards CapEx would drive the CapEx these companies to do well.

Banking Sector:

• RBI’s intervention has become more stringent due to the increase in the size of banks. Any adverse regulations can impact the entire banking sector negatively.
• Further, there is an expectation of NPA in retail loans based on the RBI’s recent action which is a negative signal for the sector.
• Also, there is a mismatch in the growth rate of deposits vs advances. Any further slowdown in the deposit growth is a key risk for the banking sector.

Auto Sector:

• Inflation in the commodity price will impact the margin and it may lead to a price correction.
• If there is no interest rate cut, auto loans will remain dearer dampening the demand further.
• The sustainability of demand plays a big role in the auto sector. Since there is no significant volume growth, a slowdown in demand will impact the top line.

IT Sector:

• The prime risk for the IT sector is the non-revival of discretionary spending in the US.
• Rupee appreciation is to be observed which can impact the bottom line directly.

Pharma Sector:

• If the price erosion in the US Pharma sector continues, it will impact the US-focused Pharma companies.
• Rupee appreciation is to be observed which can have a direct impact on the bottom line of US-focused Pharma companies.
• Any adverse regulations can impact domestic-focused Pharma companies and hospitals.
• Inflation in the commodity price impacts the margin and it may lead to a price correction.

CapEx Oriented Companies:

• Election results and Budget allocation are key factors for govt-led capex.
• In the case of private capex, if there is no visible demand, we may not see growth.

• Our stand remains similar to 2023. It looks attractive and it has the potential to generate higher returns in 1-2 years.
• Once the rate cut starts in the US, Institutional flow will move from US treasury to gold, adding additional liquidity to gold. Also, Central Banks worldwide are stockpiling gold. Hence, these factors will support gold prices.

• If there are no rate cuts by the US FED, the expected flow won’t be possible.
• Discovery of new gold mines will increase the supply which will bring down the price.
• In the Indian context, a reduction in customs duty by the Govt will also reduce the price.