Can Nifty 50 repeat the feat of 2023 in 2024? Experts warn of challenges

In 2023, the domestic equity market experienced its most impressive performance since 2017, with the Nifty 50 and the Sensex rising by 20 per cent and 19 per cent respectively. Additionally, the midcap and smallcap indices significantly outshone the benchmarks, with the BSE Midcap index soaring by 46 per cent and the Smallcap index surging by an impressive 48 per cent.

Following the remarkable performance in 2023, market participants are stepping into 2024 with optimism, buoyed by prospects of potential rate cuts, robust economic expansion, and anticipated political stability post the Lok Sabha elections. These factors collectively bode well for the equity market's outlook.

Also Read: Outlook 2024: At 15% upside, Nifty 50 to claim 25,000 by Dec 2024? Here's why analysts are bullish on Indian markets

Nevertheless, some experts caution against the likelihood of the market replicating the 2023 performance in 2024 due to factors such as a high base, elevated valuations, and the potential risk of positive factors not meeting the anticipated expectations.

"The market might have already factored in most positives; therefore, the most significant risk for the market in 2024 is the possibility of these positives not materialising," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Should the Fed fail to implement the anticipated rate cuts within the first six months to the expected extent, it could potentially lead to a global sense of disappointment," said Vijayakumar.

Also Read: Year-Ender 2023: A look back at top six factors that disrupted Indian stock market

Valuation is a key concern for the market in the short term. Many experts and brokerage firms point out that there is very little value in the market at this juncture.

"In our view, it would be best to enter 2024 with low return expectations from the market. There is very little value in the market across the capitalisation spectrum after the recent run-up in the mega-cap names, the last bastion of value in the market until recently. However, incremental news will likely be positive and may sustain market exuberance and frothy valuations," said Kotak Securities.

Dhiraj Relli, MD & CEO at HDFC Securities also believes the market may not find it easy to repeat its performance of 2023 in 2024.

"2023 has been a great year for our markets – for both the frontline indices and the broader markets. It once again showed the impact of retail and HNI buying and when the FPIs also turned buyers there was no going back. In 2024, we are beginning on a high base and hence it may be difficult to expect a similar performance by the time 2024 ends. We may have bouts of volatility due to elections, timing and quantum of rate cuts, and valuation concerns," said Relli.

However, Relli pointed out that the resurgence of FPI buying and placement of India as an attractive market, despite the seeming high valuations, may help our markets register some more gains in the early part of the year. The retail Indian has truly woken up and will drive the markets whenever the macros are favourable.

Also Read: What are the key challenges for the market in 2024?

Vijayakumar also underscored the simultaneous flow of domestic and foreign investors.

"One positive factor which the market has not yet factored in is the simultaneous flows of DIIs (domestic institutional investors) and FIIs (foreign institutional investors) next year. With inflation on a downward trend and expectations of rate cuts by the Fed, it sets a favourable environment for both DIIs and FIIs to sustain their investment momentum. This collective support could significantly propel the market upward in 2024. While it might not reach a 20 per cent growth, there's potential for the Nifty 50 to possibly grow by around 15 per cent in 2024," said Vijayakumar.

Also Read: 2023 in Review: FPI inflows recorded at ₹1.65 lakh crore, highest since 2020; will the trend continue?

The strong surge in the number of retail investors has played a pivotal role in driving the market's stellar performance. Data show the number of registered investors with BSE has jumped over 27 per cent year-on-year (YoY) to 3.3 crore as on December 30, 2023.

Also Read: Number of BSE-registered investors see a jump of 27% YoY in 2023. What does it mean for the market?

However, the response of retail investors during times of market volatility could be a challenge.

As Sunil Subramaniam, MD and CEO of Sundaram Mutual Fund pointed out the year 2023 has been a great one for the markets as domestic flows, especially the SIP (systematic investment plans) book, have been strong and giving buying support whenever FPIs (foreign portfolio investors) flows have slackened.

"There has been a sharp increase in the number of folios at the smaller end of the cap curve. Given that these are inherently more volatile than the larger caps – retail investor behaviour during periods of volatility will be a challenge that could crop up and needs to be appropriately addressed," said Subramaniam.

Also Read: Retail investor response to market swings a key challenge ahead, says Sunil Subramaniam of Sundaram Mutual Fund

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