Nifty could hit 24,000 by year-end on monetary easing, FPI inflows, says Emkay Global

The Nifty index is expected to climb 11% and reach 24,000 by December 2024, predicted Emkay Institutional Equities while raising its sights on the Indian stock market, on January 18. This bullish outlook comes as expectations of lower interest rates and strong foreign portfolio inflows (FPIs) paint a rosy picture for the year ahead.

Seshadri Sen, Head of Research & Strategist, Emkay Global Financial Services, said, “With index setting at long-term mean valuations, we expect 11% return for the Nifty in 2024. The current composition of the Nifty is predominantly defensive. The India story is largely a capex-driven, industrials-led earnings bounce-back. The Nifty, on the other hand, is largely driven by consumption and, to some extent, tech."

Additionally, small and mid-cap companies (SMIDs) are poised to outperform, riding the wave of robust earnings growth and improving return ratios, it further added.

The forecast suggested that the US Federal Reserve is anticipated to initiate easing in the third quarter of CY2024, implementing measured cuts, and the Reserve Bank of India (RBI) is expected to swiftly follow suit. This is anticipated to boost valuations in growth stocks, particularly in sectors like manufacturing and select premium consumer categories, which are experiencing macroeconomic tailwinds. 

“There is growing divergence between Nifty and NSE500 weights. So, while the economy and broader markets would still rule at high valuations in Dec-24, such optimism may not reflect in the broader Nifty. Manufacturing and infrastructure are expected to gain prominence as prime themes in the year 2024,” Sen added.

Meanwhile, equity inflows for FY25 will surpass the USD 36.7 billion observed in FY21. This optimism is based on the larger market-cap base, which has enhanced India's absorptive capabilities, and the country's potential to attract a larger share of risk-off emerging market flows, stimulated by the Fed's rate cuts, considering China's challenges in attracting such flows, according to the Emkay Institutional Equities report.

Nirav Sheth, CEO- Institutional Equities, Emkay Global Financial Services, said, “From aspect of the economy, as Indian macros are not sensitive to rate cuts, a rate cut is not expected to result in a major growth stimulus. However, it will influence stock market to make an upward mobility in its direction. The biggest positive of a rate cut would be the impact on foreign portfolio flows. FPI flows are anyway expected to be strong in 2024, with the debt market set to see passive inflows of USD25-30bn from inclusion in the JP Morgan bond index. Most of the macro positives would be huddled in Apr-Sep 2023: the election results, a strong budget, Fed and RBI rate cuts, and a possible margin windfall from weaker commodity prices.”

The expected decrease in interest rates is projected to mainly impact the short end of the yield curve, with limited potential for an increase in the 10-year yield due to its recent significant rally in CY23. Short-end yields, however, are anticipated to decrease by 50-75 basis points, contingent on the degree of accommodativeness exhibited by the Reserve Bank of India (RBI).

Regarding the fiscal deficit, the government is likely to reduce it to 5.2% in FY25, representing a decrease of approximately 70 basis points year-on-year. This reduction poses a challenge to growth, whether achieved through tax adjustments or spending cuts. Emkay suggests that this potential headwind could be offset by anticipated monetary easing in the second half of CY24. Even if the US Federal Reserve adopts a "higher for longer" approach, Emkay believes that the RBI can cut rates, given the expected robust Foreign Portfolio Investor (FPI) flows in debt through inclusion in the JP Morgan index.