Outlook 2024: Bullish on PSU theme, IT sector may face headwinds, says Naveen Kulkarni of Axis Securities PMS
- Year 2023 has been remarkable for Indian equities as the broader market delivered solid returns. Even as Nifty 50 beat the long-term average returns, the smallcap and midcap indices delivered astounding returns.
Stock market in 2024: The stellar performance of small and midcap stocks this year is unlikely to repeat in 2024 as investors will focus on largecaps and quality themes, says Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS. In an interview with Livemint, Kulkarni said he expects 2024 to turn out to be a little more challenging than 2023.
However, he believes the public sector companies (PSU stocks) will continue to benefit while the IT sector is likely to see challenges in 2024 as it will experience the most slowdown. Edited excerpts:
Q. How would you assess the market's performance in 2023, with the Nifty 50 showing a remarkable uptrend of over 17% so far? What were the pivotal factors shaping investment decisions throughout the year?
A. 2023 was remarkable for Indian equities as the broader market delivered solid returns. Even as Nifty 50 beat the long-term average returns, the smallcap and midcap indices delivered astounding returns. Some of the key factors which were responsible for solid returns during the year were risk-taking rewarded throughout the year. Time in the market rather than market timing was another critical factor for the strong returns, and last but not least, the PSU story continued, wherein they delivered another year of very strong returns.
Q. Given the upcoming elections in India and the US, coupled with potential shifts in central banks’ monetary policies, how do you foresee heightened volatility impacting the markets in 2024? What approach would you recommend for investors navigating the uncertainties associated with these factors?
A. Volatility has been steadily inching up in the last month, notwithstanding the strong market returns. In 2024, multiple factors are likely to play out. In general, growth worldwide is likely to taper down, but so will the challenges of rate hikes that we witnessed in early 2023.
Nonetheless, volatility is bound to see a steady rise. The rise in market volatility has an impact on the market breadth. 2024 is unlikely to see a repeat of the excellent performance in smallcap and midcap stocks seen in 2023. The market will focus on largecaps and quality themes. Thus, 2024 could turn out to be a little more challenging than 2023.
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Q. Are there specific sectors poised to be outliers in the coming year, and if so, what factors contribute to their anticipated growth?
A. The PSU theme is likely to see an uptrend even in 2024 as expectations of a stable political regime have increased immensely in India. In this scenario, PSUs are likely to benefit disproportionately in 2024. PSUs have started to deliver growth potential but are still largely priced as value stocks. Thus, PSU will still be an important sector in the upcoming year.
Q. Conversely, which sectors are expected to face challenges in 2024, and what are the reasons for caution?
A. The IT sector will likely see challenges in 2024 as it will experience the most slowdown. Discretionary spending is likely to see deferment in 2024. Thus, deal wins are likely to slow down further. In the absence of currency tailwinds in 2024, the IT sector will likely see headwinds.
Q. In the face of potential volatility and market uncertainties, what would constitute a prudent risk management strategy for investors in the coming year?
A. The broad strategy is to focus on quality and liquidity management. Avoid market cycles and sector rotation plays, and focus on business cycles. These factors will help in delivering healthy returns in the next year.
Q. How should investors structure their portfolios to mitigate risks while optimizing returns?
A. As indicated earlier, the focus will remain on quality and portfolio liquidity to optimize returns.
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 decisions.
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