Market Outlook: 2024 time to be cautious, not fearful, says Sharekhan; DLF, HDFC Bank, Hero Moto among 12 top picks

The New Year 2024 appears promising with the markets hitting a new high and economic growth being healthy, especially in the context of a slowdown globally, brokerage house Sharekhan said in a recent note. However, it added that 2024 is the time to be cautious, though not fearful.

"Valuations look stretched in certain pockets, as reflected in the micro-cap rally and the euphoria in primary issues including the SME segment. The Nifty trades at 23.4x the trailing 12-month price-earning (PE), which is not cheap but isn’t expensive either, especially given the expected earnings growth of 12-14 percent CAGR over the next two years," noted the brokerage.

In the previous year, the Indian market gave exceptional returns, rising 19 percent. While the year 2023 began well, the market did hit some hurdles like bankruptcy by some of the regional banks in the US, a flare-up of geopolitical risks, and high interest rates globally. However, the market did not stay down for a long time and the corrections were rather shallow, said the brokerage.

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"Supported by strong domestic inflows and encouraging economic data, Indian equities stood out with close to 19% returns and outperformed most other large equity markets globally. Sentiments are also boosted by the recent hike of GDP forecast by RBI to 7 percent (up from 6.5 percent) for FY2024 and the clean sweep in state elections by the BJP allays in fears of change in political leadership," it further pointed out.

Time to readjust portfolio allocations

As part of the portfolio readjustment for the year 2024, the brokerage prefers increasing exposure to largecaps (over smallcaps/microcaps). It would be better to tactically take home some profits in the broader market (read small/microcaps), it added.

Also, there is a strong case to increase exposure to ‘Value Stocks’ available at reasonable prices as against chasing ‘Growth stocks’ trading at steep valuations, advised the brokerage.

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In terms of sectors, Sharekhan sees better times for pharma, two-wheeler auto, and IT services spaces. Apart from this, the brokerage also sticks to its core multi-year investment themes of capex (engineering/infra/real estate), capital (banks/financial services), and consumer (discretionary spending) to ride the multi-year upcycle in the Indian economy.

Accordingly, the brokerage has short-listed high-conviction investment ideas for investors.

It has also identified a few dark horses that have potential re-rating triggers that could play out in 2024.

Multi-year growth story intact

Real Estate (Solid recovery after slumber): As per the brokerage, a revival in the property cycle is likely to be sustained driven by a time correction in prices, better affordability, reasonable interest rates and the need to have bigger houses. This will have a positive impact on many industries (such as steel, cement, building materials, and other related sectors) and generate employment across income strata, added the brokerage.

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Infrastructure (Infra spending remains a key booster): Budgetary allocation for capex has been going up substantially for the last couple of years and supporting various industries, noted the brokerage. The government looked at innovative ways like the Nation Asset Monetisation Plan to support its ambitious target ₹111 lakh-crore investment under the National Infrastructure Pipeline (NIP), it further highlighted.

Corporate Capex (Set for an expansion spree): Many large corporates have set out a capacity expansion (including core sectors). Banks are in better health now and capitalised to support credit growth in the economy. Private sector deleveraging and improved asset quality of banks to support expansion plans. The intensity of corporate capex doubled in the range of ₹24-26 lakh crore vis-à-vis five years back, stated the brokerage.

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Outlook

Given the current monthly average SIP flows to date in FY24, it can potentially rise to ₹1.8-2 lakh crore annually and the figure will only grow. Hence, DII flows are expected to continue providing resilience to Indian markets against FII flows (if it happens) in 2024 and beyond as well, forecasted Sharekhan.

It further added that given the recent commentary from the US Federal Reserve, a likely reversal of interest rate is expected to aid emerging markets including India in 2024.

This is likely to ensure India would see foreign inflows (into debt) of around $25 billion. This will result in a stable rupee and low cost of funding for India and therefore, strong corporate earnings, it predicted.

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"The Nifty saw a sharp over 20 percent up move in FY24 YTD aided by sustained DII flows and a revival of FII flow on a healthy growth outlook. However, Nifty’s current TTM valuation at 23.1x is still at a 30 percent discount as compared to the last all-time high made by Nifty in October 2021. While the market has gained over 13 percent during the last peak in 2021 to 2024 peak levels, Nifty earnings have actually risen by over 50 percent during the period. Further, within this timeframe, other economic indicators such as GST collections (improved from ₹1.3 lakh crore monthly collection to ₹1.7 lakh crore), credit growth (from 6 percent to over 15 percent), manufacturing and services PMI and among others," stated Sharekhan.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.