5 key macro themes that will influence the market in 2024
Experts predict that the market in 2024 will be impacted by election outcomes, domestic capex traction, inflation rates, and potential recessions in the euro area and the United States.
The Indian economy shone brightly as a standout performer in 2023 amid elevated interest rates, persistent inflation, weakening demand, and geopolitical tensions, while numerous other major economies grappled with difficulties.
The robustness of the Indian economy has been the key driving force behind the strong performance of the Indian market this year; equity benchmark Nifty 50 has risen over 18 per cent this year so far.
Apart from the domestic economy, geopolitical developments, movement in the US dollar and bond yields, crude oil prices, etc. were some of the key macro themes that affected market sentiment in 2023.
Let's take a look at some key macro themes that will affect domestic market sentiment in 2024.
5 key macro themes that will influence the market in 2024
1. Central banks' moves
Major central banks of the world, including the US Fed and the RBI, are expected to trim interest rates in the coming year. However, the timing and the extent of rate cuts will be the key factors. Furthermore, how central banks evaluate inflation and growth will significantly impact market sentiment.
2. General Elections 2024
India will most likely see General Elections in April-May. A stable government post-election is anticipated and would be favourably received by the domestic market. While an NDA victory might not result in a substantial market upsurge, its defeat could prompt a swift, short-term reaction. Nevertheless, the market is expected to eventually refocus on fundamental aspects and corporate earnings.
"With recent big wins in MP, Chhattisgarh and Rajasthan state elections, the likelihood of NDA coming to power again in 2024 has increased substantially. We don’t think the 2024 win will trigger any sharp rally in the market, it will just be business as usual. A loss though can cause an immediate negative reaction in the markets," said Ashutosh Tiwari, Managing Director and Head of Institutional Equities at Equirus.
"Foundations laid by the current government in infrastructure, manufacturing, import substitution, etc., are going to fuel economic growth over the medium term and hence barring short-term reactions, we don’t see any risk of a steep correction in the markets," said Tiwari.
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3. Budget 2024
The Budget in February will be a Vote on Account ahead of the Lok Sabha elections. However, after the government is formed, the July Budget will be a key macro event for the market.
"We expect the Budget 2024 to continue on its stated guide path of fiscal deficit targets. Focus on infrastructure development and measures to enhance Indian manufacturing competitiveness should continue unrelentingly in our view," said Sonam Udasi, Senior Fund Manager at Tata Mutual Fund.
4. El Nino, development of monsoon
The El Nino impact is expected till June 2024, potentially impacting monsoon patterns and the cultivation of essential crops, thereby posing a notable threat to the rural economy.
"The El Nino weather phenomenon, which brought dryness to large parts of Asia this year, is forecast to continue in the first half of 2024, putting at risk supplies of rice, wheat, palm oil and other farm products in some of the world's top agricultural exporters and importers," reported Reuters.
The monsoon significantly affects various aspects of India's economy like inflation, rural income, consumer demand, trade, and farming productivity.
Over half of India's population relies on agriculture and related fields for their livelihood. The agricultural sector, contributing approximately 18 per cent to the country's total output, heavily relies on the monsoon for its success.
5. Geopolitical developments
Geopolitical factors significantly influence investors' risk tolerance by impacting economic stability, causing volatility in stock markets, and triggering fluctuations in currency values.
Apart from the above-mentioned factors, crude oil prices, the movement of the US dollar and bond yields, and government policies are among several other factors that will continue influencing market sentiment in 2024.
What experts say
Anand Shah, Head PMS and AIF Investments, ICICI Prudential AMC
2024 is an election year both in India and the US. The outcomes of these events may have a transient impact on the market. Next is the anticipated traction in domestic capex driven predominantly by the private sector. Furthermore, both the corporates and the banks have robust balance sheets to support private capital expenditure. And finally, the interest rate trend after inflation starts to cool off.
Tanvi Kanchan, Head - Corporate Strategy, Anand Rathi Shares and Stock Brokers
One of the key events to look at would be steady growth with the year divided into two halves – with general elections set in Q2 2024, the first half of the year to be driven by government spending and post-election we can expect investment growth to re-accelerate, lead by the private sector.
Rapid monetary tightening initiated in 2022 may have a significantly greater adverse effect on growth than is presently estimated. As a result of the inflationary surge that occurred in 2022, the major central banks might be considerably more reticent about reducing interest rates during the current cycle.
Recessions in the euro area and the United States continue to be distinct possibilities. These setbacks, in conjunction with the current overvalued state of the US equity market, indicate that a significant market correction in the United States is probable in 2024.
Kedar Kadam, Director - Listed Investments, Waterfield Advisors
The key factors to watch out for will be:
(i) Global macro and geopolitical developments, (ii) domestic inflation trajectory, especially food inflation, (iii) a slowdown in the pace of rural recovery, (iv) a narrow rate easing cycle, (v) a further decline in exports, (vi) fiscal balances.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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