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Domestic markets are ending the year 2023 on a buoyant note as Nifty scales above 21500 mark while Sensex crosses 71000. Investor’s sentiments got a big boost in November and December which helped both domestic as well as global markets scale new high.

GDP growth in 1HFY24 stood at 7.7% led by a robust print in manufacturing and investment sectors. This led to RBI revising its GDP forecast upwards to 7% for FY24. The RBI has given robust growth projections for FY25 as well with growth averaging 6.5% in the first three quarters of the fiscal. Such optimistic expectations for real GDP growth give space to remain bullish on the market. Even other high-frequency data points (GST collections, auto monthly numbers, power demand, PMI data) witnessed robust growth. On the other hand, the 1HFY24 corporate earnings ended on a buoyant note with Nifty companies delivering 30% YoY PAT growth. We expect the Nifty EPS CAGR to be around ~20% over FY23-25, with scope for further rerating.

With the BJP sweeping victory in the State elections of Rajasthan, Madhya Pradesh and Chhattisgarh, the confidence of the investors regarding political continuity post 2024 Lok Sabha elections has received a big boost. Already the sentiments were buoyed by the healthy trend in corporate earnings growth and resilient domestic macros, and is now likely to strengthen further. This augurs well for macro and policy momentum for India, which, at the moment, is seeing the highest growth among major economies (both GDP as well as corporate earnings).

All this have led to upgrade in India’s rating as well as GDP growth forecast by various global firms, resulting in BSE-listed companies’ market-cap crossing all time high of $4trillion mark. Infact NSE overtook Hong Kong stock exchange to become world’s 7^th largest exchange by market cap.

Positive Domestic cues got further strength from global factors becoming favourable. The interest rates seem to have peaked out, leading to decline in bond yields and dollar index. US Fed in its last monetary policy for 2023 hinted at 3 rate cuts in 2024 which has led to huge optimism globally and other central banks are likely to join soon.

However geopolitical tensions created volatility in the market throughout the year though the impact was limited. Off-late attack on Suez Canal route has led to surge in oil prices and poses a threat to global supply chain which in turn could lead to inflationary pressure on commodities and impact earnings.

IPO market was very vibrant, following the bullish trend in the secondary market. 58 IPOs came to the market for subscription to raise funds worth ?48000 crores against 40 IPOs last year (total issue size of ~?64000 crore). Going ahead to the pipeline remains strong with sharp increase expected in new-age tech IPOs including Ola Electric, Swiggy, FirstCry, Mobiwik.

Thus, India's macro and micro fundamentals remain strong and is helping the market to scale new highs. Nifty has given returns of 18% in 2023 so far. Despite this up-move, Nifty is trading at a 12-month forward P/E ratio of ~19x, which is at a discount to its 10-year average of 20x.

Midcap and smallcaps witnessed huge rally with Nifty Midcap100 up 44% while Nifty SMallcap100 surged 54%. PSUs, realty, auto along with several niche sectors like power, defence, shipping, fertilizer, EMS saw huge buying interest. PSU Banks sharply outperformed private banks as they are now well placed to sustainably deliver 1% RoA and have scope of earnings upgrade. 

As we step into 2024, several key events next year would have an influence on market. General Lok Sabha Election in May 2024 and first budget post-election would be most important on the domestic front. While on the global front, factors such as economic growth, rate cut, inflation along with geopolitical issues would be the key drivers.

India remains a shining star and is expected to maintain its outperformance. We expect market sentiment to strengthen further as the ongoing pre-election rally is likely to continue. Any rate cut would provide additional boost to the market. Given the government’s focus approach towards long-term capex across key areas, along with expectations of rate cuts globally in 2024, Growth stocks will be in focus. We expect BFSI, Industrials, Real Estate, Auto and Consumer Discretionary to do well going forward. We believe that over the next couple of quarters, sector rotation could be an important driver along with the overall market uptrend. We also believe valuations will become an important factor in stock selection to drive outperformance in portfolios.

Top Picks: SBI, Hero Moto, Spandana Sphoorty, L&T, Dalmia Bharat, Tata Consumer, Syrma, Coal India, Prestige, Zomato, LTTS, Oil India, Sun Pharma, Kajaria

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