In the year 2023, the Indian equity market went through a roller-coaster ride as at the start it was already grappling with geopolitical issues and inflation worries. Further, the rough patch continued with the banking crisis in the US impacting export-oriented sectors, especially IT, while at the same time, FII (foreign institutional investors) were the net seller for most of the months which impacted sentiments.
Although raising interest rates was one of the steps taken by central banks to battle inflation, it impacted the overall growth of the economy.
In the second half of 2023, the pessimism faded as commodity prices started to moderate, bringing inflation down. This stability led to a consistent repo rate of 6.5 per cent, while the government persisted in its expenditure on infrastructure development.
Along with these factors, on the sector front, earning visibility and healthy demand for a few sectors such as banks, auto, cement and infrastructure cheered the mood while a few sectors such as FMCG, consumer durables and IT witnessed mixed trends.
Further, for banks, deposits and loans seemed to pick pace while premiumisation and affordability aided growth for auto. Increasing demand for real estate and housing projects, and capacity expansion boosted growth for the cement and infrastructure sector.
Last but not least, the state election outcome was in line with market expectations and healthy inflow from DII (domestic institutional investors) and FII supported the rally.
Thus, these factors altogether led the benchmark indices, Sensex and Nifty 50 touch new highs of 71,913 and 21,593 respectively.
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With markets at record highs, we are stepping into 2024; there are expectations that the Indian economy is poised to be one of the fastest-growing economies in the world.
So, the factors that would be driving the growth for India as compared to other economies are improving the macroeconomic environment, better demand and GDP growth prospects, manageable inflation and steady interest rates.
Apart from this, on the domestic front, quarterly earnings along with Budget 2024 as well as General Election 2024 are crucial factors to watch.
Also Read: 27 Nifty 50 stocks recorded new all-time highs this year; will the rally continue in 2024?
For markets to maintain a positive tone in 2024, we anticipate quarterly earnings to see improvement with demand gaining strength, steady topline growth led by pick-up in the rural economy, and stable raw material prices which would aid in further margin expansion.
Moreover, 2024 is an election year, hence the General Election outcome will be crucial but yes participants are anticipating and hoping for a stable government to come to power as that would be positive for the economy as well as stock markets.
On the global front, the US market indices Dow is trading near its peak as the US Fed in its recent meeting has signalled rate cuts for 2024.
Meanwhile, some relief was observed in inflation, but it remains above the Fed's target levels. Sentiments are expected to receive a further boost in both the Indian and US markets once there is some moderation in inflation and interest rates.
Also, the US presidential election outcome scheduled in November 2024 will be on the radar.
To conclude, we expect domestic markets to be highly volatile so investors as well as participants are advised to keep their focus on specific sectors and stocks.
Amongst sectors, we are positive on themes such as banking, auto, cement and infrastructure which would be the leaders while in the IT sector, though there are headwinds, valuations seem to be lucrative so investors can look to add names from the IT space from medium to long term perspective.
Investors are advised to focus on diversifying their portfolio across sectors and focus on buying and accumulating companies in the mid to large-cap space which has strong fundamentals and decent financials along with long-term growth prospects while avoiding high-debt companies.
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Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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