Geopolitical situation, Fed action to weigh on returns in Samvat 2080

Market observers expect high single-digit returns for the benchmark indices in Samvat 2080 as well.

The general elections to be held next year, coupled with global interest rates, bond yields, inflation and geopolitical issues may be key factors that dictate market movement this year.

Interest rates are widely expected to have peaked and the US Federal Reserve may keep rates steady from here on.

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“Interest rates may fall next year as the US heads towards a recession. Lower interest rates, lower dollar and an election outcome that signals stability will augur well for India. Overseas flows into India will also depend a lot on the sentiment towards China,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies.

Unprecedented outflow

Foreign portfolio investors have turned net sellers since September, offloading equities worth over $5 billion, after six straight months of buying.

“We expect next few months to remain volatile given the impact of EL Nino on inflation, global volatility in commodities and interest rates,” said Amnish Aggarwal – Head of Research, Prabhudas Lilladher.

According to UR Bhat, director, Alphaniti Fintech, the Ukraine, West Asia and Taiwan will be the three key flashpoints to watch out for and any escalation in conflict from these parts can impact market sentiment. “Inflation in the US, though not exactly in the comfort zone, has stabilised somewhat. We may see at best one more interest rate hike in the US and then a cut, possibly in the last quarter of 2024. The markets will celebrate any news that signals a stable or benign interest rate environment,” said Bhat.

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Holland says he is neutral on valuations right now and expects the earnings growth to start improving in the coming quarters as the multiplier effect of the government capex comes through.

Nifty is trading at a 12-month forward P/E of 17.6x, which is at a 13 per cent discount to its 10-year average. Nifty earnings are expected to maintain their healthy growth at 18 per cent CAGR over FY23-25, according to a note by Motilal Oswal Financial Services.

High-end demand

Prabhudas Lilladher’s Aggarwal says domestic demand is showing a clear divergence with strong demand from the upper strata of society. Consumer wallet spends are changing as discretionary categories are growing faster than staples and small ticket items.

HDFC Securities continues to favour domestic-oriented businesses in the current environment in sectors such as Materials, Pharma, Oil & Gas, Small Finance banks, Petrochemicals, consumption, Power EPC and restructuring plays.

After ending in the red the previous year, the benchmark indices chalked up gains in Samvat 2079, with the Nifty rising 9.5 per cent and breaching the 20,000 mark in September.

Samvat 2079 recap

A resilient economy, healthy corporate earnings, overseas flows between March and August, and retail participation, especially through systematic investment plans, drove the market.

The Nifty Mid and Smallcap indices outperformed with gains of 30 per cent and 36 per cent, respectively.

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“The Indian economy and corporate earnings remained resilient despite negative global cues and turmoil in the oil market. The earnings recovery in the BSFI and auto space was quite remarkable. The fiscal situation has been well-managed and inflation has been kept in reasonable control,” said Bhat.

India also managed to successfully navigate the volatility in the oil market and get its supplies from Russia and Venezuela at reasonable prices, he added.