In 2023, Indian stocks reached a record high. What can we expect in 2024?

 In 2023, Indian stocks reached a record high. What can we expect in 2024?

 In 2023, Indian stocks reached a record high. What can we expect in 2024?

The US Fed's projected rate decrease, the BJP's good showing in the Lok Sabha elections, and the party's robust purchases by FIIs and domestic mutual funds all point to the party's continued dominance into the first half of 2024. However, there are risk considerations as usual.

On December 14, 2023, the main stock index, the Sensex, ended at an all-time high of 70,514.2, representing an annual gain of 16 percent. This follows the Sensex's 2.75-year doubling between March 2020 (29,468) and December 2022 (60,840), after the post-Covid rebound.

Intense purchasing by domestic MFs and FIIs in 2023

The following elements made this impressive accomplishment possible:

* Strong FII purchases of more than Rs 1 lakh crore in 2023, compared to net sales of Rs 1.21 lakh crore in 2022.

* Persistence of domestic mutual fund purchases. Between March 2020 and November 2023, the amount invested in equity plans surged by almost four times, from Rs 5.7 lakh crore to Rs 20.3 lakh crore.

With victories in the three Hindi heartland states of Rajasthan, Madhya Pradesh, and Chhattisgarh, the BJP has boosted the market and signaled the return of the NDA in the national elections in 2024.

The Indian stock markets' performance has not been unique. The US benchmark stock index, the SPX 500, has returned 22% over the last year despite fears of a recession.

Compared to other years, the performance of Indian stocks has been much more diversified. Ten of the fifteen sectors, according to sectoral research, have outperformed the benchmark Sensex in terms of returns between April 2020 and November 2023.

2024: building up to the general elections

Since the announcement of the exit poll on November 30, the Sensex has increased by 5.3 percent this month. The triumph of the BJP signifies a continuation of policies and initiatives that tackle worries that the Congress party's win may have pushed a fiscal populist agenda. This market momentum is probably going to last until the general election results in May of next year, since the most recent opinion surveys indicate that the NDA is going to make a return.

record number of demat accounts established annually, record SIP collection with increasing domestic participation, and rupee inflows. The markets get respite for November 2023 with a sum of Rs 17,073 crore.

Increased market growth is anticipated in 2024 due to higher corporate profits growth. India's profits growth is predicted by HSBC to reach 17.8% in 2024, which is among the quickest rates in Asia. HSBC claims that the industries with the greatest prospects for 2024 are those that have already done well this year, such banking, healthcare, and energy.

India's big economy continues to develop at the quickest rate in the world. Due to a significant surge in the manufacturing sector, the GDP growth rate in the second quarter of FY 2023–2024 was 7.6 percent, above market estimates.

Market participants anticipate a rate reduction in 2019 as inflation drops below 5%. When investors go from low return products like fixed-income securities to equities markets, low interest rates boost liquidity.

Additionally, the US Federal Reserve has signaled that it will stop hiking interest rates in 2024 and begin lowering them. Three rate reductions of 25 basis points are now anticipated by market experts for 2024.

This caused the Dow Jones Industrial Average to rise over 37,000 for the first time, which had a major effect. The 10-year US Treasury yield dropped to less than 4%, which may lead to significant capital inflows into India.

FII flow fluctuations have typically been associated with Indian stocks. Sensex typically shows positive month-over-month growth when FIIs are net purchasers; this is the case for almost 70% of the time.

Risk Factors for 2024

Throughout the last 12 months, the market capitalization to GDP ratio has continuously been above 100%. The MCAP/GDP ratio becomes positive when it rises over 100%. While some think that the "new normal" is closer to 100% given the rise in IPOs, many still hold the traditional belief that anything beyond 100% suggests the market is overpriced.

With wealthy nations focusing on globalization, geopolitical concerns, high interest rates worldwide, and local development issues, India's economic growth may get a respite in 2024.

S&P has decreased its growth estimate for the financial year 2024–2025, however it has raised its fiscal 2023–2024 GDP growth projection to 6.4% from 6% as "strong domestic momentum has offset headwinds from high food inflation and weak exports." rise to 6.4 percent from the previous 6.9 percent.

As 2024 approaches, attitude is upbeat. But investing requires caution, particularly with small- and mid-cap firms that have high values. Long-term investors should allocate their assets with an eye toward undervalued markets and have enough cash on hand.