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The returns in 2024 will depend on the tussle between fundamentals and sentiment. In an entirely ‘fundamental’ market, returns will likely be modest for the market and negative for many stocks, says a report by Kotak Institutional Equities.

A bottom-up plug-in of our 12-month FVs for individual stocks shows a modest 1 per cent upside for the Nifty-50 Index. In a less-than-fundamental market, market returns can vary, as it is impossible to factor in sentiment in any market calculus.

“Thus, we are amazed by the general obsession with forecasting prices (versus deciphering value) and awed by most participants’ purported ability to forecast prices,” the report said.

Any market correction will be entirely based on a big change in the market’s expectations of potential returns. "We have no idea though as to what will change the market’s bullish return expectations, which have been reinforced by the stellar returns of the past three years” for ‘new’ retail investors, the report said.

“We can point to a few fundamental factors, such as (1) earnings downgrades (although earnings misses are passe in the current state of irrational exuberance) and (2) higher-than-expected interest rates (unlikely). Increased focus on fundamentals versus flows may result in a correction, but we wonder why investors ask this question but stay invested”, the report said.

“We do not see any major event that can shock retail investors and curtail flows. Domestic (decent macro-economic situation) and global (lower interest rates) factors are supportive. The Indian market has seen a significant correction on (1) extreme valuations (2001, 2008) or (2) domestic or global shocks (2004, 2016-17, 2020)... We find this obsession of institutional investors with retail flows quite fascinating; we hope that 'sophisticated' investors are not taking their cues from retail flows,” the report said.