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As we approach the end of fiscal year 2024, it seems that the world has transitioned beyond the pinnacle of interest rate hikes, inflation, and economic consolidation. In India, the pace of macroeconomic growth remains robust, and economic activities are above pre-pandemic levels. Government spending has resumed, employment is increasing, and supply bottlenecks are gradually easing, providing a counterbalance to the negative impact of higher inflation (although it is moderating faster). In the medium term, the Indian economy is poised to receive support from a stable political scenario, favorable policy environment, the effects of Production-Linked Incentive (PLI) programs, opportunities arising from changes in the global supply chain, and the government's focus on infrastructure spending. The outlook for the bond market looks favourable with the rate environment seeming benign. The monetary policy will continue to be actively disinflationary keeping an eye on global cues & events, being strongly interrelated. Despite the core inflation steadily easing, food inflation remains volatile and broad-based & remains a key concern. A reasonable visibility on the potential attainment of a ~4% inflation target and easing in policy rates from the developed markets could pivot the reaction by RBI in favor of a rate cut, possibly in June policy, we estimate a total of 50 bps rate cuts in the next financial year.

Forecasting both markets and elections is challenging. In 2024, over 2 billion voters across 50 countries will participate in record-breaking elections, notably in India and the US. In India, PM Narendra Modi's government is likely to retain its majority, with low perceived risk to continuity. Conversely, the US election presents a more contentious scenario with potential legal, political, economic, and security implications. This uncertainty is a known unknown that cannot be overlooked. India's elections are a big show, and with the upcoming General Election in 2024, the stage is set for a roller-coaster ride in the stock markets. The big question on every investor's mind is: How will this event move the markets? If you were to compare it with the historical average, a lot of returns have already been discounted ... and the victory of the current government is already priced to perfection.

Analysts believe the next leg of the trending move could happen if the Reserve Bank of India cuts interest rates.

The Impact of Geopolitics?

From elections, we head to geopolitics, which remains on the boil. The two large conflicts that dominate the global landscape are Ukraine-Russia and Israel-Hamas. The most significant risk here is that of conflagration with more players or countries getting pulled into the fray. We just don’t know yet. Alternatively, the conflicts may simmer down or for that matter reach a peaceful resolution. That would certainly be good for those directly in the line of fire and have a significant impact globally as well.

One important takeaway for India from the Ukraine-Russia conflict is the importance of establishing a robust defence manufacturing infrastructure. As India pursues its goal of becoming the world's third-largest economy with a GDP of $5 trillion within the next three years, it must remain vigilant regarding geopolitical challenges.

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