The year 2023 has been positive for the Indian stock markets. The BSE Sensex has yielded a return of 16 per cent over the one year (as of December 21, 2023), with the index touching an all-time high on December 20, 2023 at 71,913. Will the rally continue in 2024?
While next year’s risks, such as crude oil prices and the upcoming 2024 elections, are considered manageable, global headwinds, including a potential sharp economic slowdown and financial accidents, pose significant threats, say experts.
“In 2024, the Indian stock market is anticipated to maintain its positive trajectory, driven by the ongoing investment cycle and manufacturing recovery. Despite concerns about elevated valuations, particularly in large caps, fund managers express confidence in the sustainability of growth due to the quality of the economic revival, led by increased investments and manufacturing activities. The forward PE for Nifty stands at 20x, reflecting the market’s premium valuation, justified by the resilience of India’s economic growth compared to other emerging markets,” said Rahul Singh, CIO-Equities, Tata Asset Management.
Which sectors and mutual funds to invest in 2024? “The market outlook favours cyclical sectors such as banking, infrastructure, power, manufacturing, and capital goods, aligning with the broader themes of investment and manufacturing cycle recovery. Fund managers remain cautious about mid and small caps, anticipating a consolidation phase in the next six months,” added Singh.
According to Kenneth Andrade, Founder, Director-Old Bridge Capital Management, and CIO-Old Bridge Asset Management, the market capitalization to GDP ratio (also known as the Buffett indicator) has reached levels that signal potential overvaluation and suggests that investors should tread with caution as the market may have priced itself well ahead of the curve. The ratio measures the total value of all publicly traded stocks in a country, divided by that country’s gross domestic product (GDP).
Andrade shared these views on December 20 even as the benchmark equity index BSE Sensex crashed nearly 931 points, or 1.30 per cent, to 70,506. On a year-to-date basis, the 30-share index has gained more than 15 per cent in 2023. On the other hand, broader indices including the BSE MidCap and BSE SmallCap indices have soared over 40 per cent each YTD. Andrade advised investors to stay cautious in 2024. He believes that excesses in the small and microcap space raise concerns and there is an anticipation of volatility, especially in segments where valuations appear stiff.
The fund manager’s strategic allocation involves a focus on growth at a reasonable price (GARP), emphasizing valuation discipline, earnings upgrade cycles, and long-term opportunities. Key sectors demonstrating strength include domestic cyclical sectors like capital goods, autos, industrials, and the revival of pharma and healthcare. As fund managers expect more of the same trends from the previous quarters, investors are advised to adopt a balanced 40:40:20 approach, combining balanced advantage funds, diversified equity, and more aggressive products for a well-rounded investment strategy in 2024, added Singh.
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