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 Emkay Institutional Equities (“Emkay”), a part of Emkay Global Financial Services Limited, estimates Nifty to scale up to 24,000 level; registering a return of 11% by December 2024. SMIDs (small and mid-caps) should continue to outperform, with better earnings growth and momentum in return ratios.

The US Fed is expected to start easing in 3QCY24 with measured cuts, and RBI would follow suit almost immediately. This would give a fillip to valuations in growth stocks, especially in sectors such as manufacturing and some premium consumer categories that are seeing macro tailwinds. Emkay expects FY25 equity inflows to exceed the USD 36.7bn inflows of FY21, given that: i) the larger market-cap base has improved India's absorptive capabilities; and ii) India is set to garner a larger share of risk-off emerging market flows, triggered by Fed rate-cuts, given China's inability to attract flows.

Banks would face immediate short-term pressure in the early part of the easing cycle. External-benchmarked mortgages would reprice downwards almost immediately, followed by short-term corporate loans. Most large-cap banks are expected to show slower earnings growth in FY25 than the preceding years which would be a drag on the stocks. The reverse of the 2-3Q FY23 story would play out, with bank margins falling sharply and stocks underperforming.

According to Mr. Seshadri Sen, Head of Research & Strategist, Emkay Global Financial Services, “With index setting at long-term mean valuations, we expect 11% return for the Nifty in 2024. The current composition of the Nifty is predominantly defensive. The India story is largely a capex-driven, industrials-led earnings bounce-back. The Nifty, on the other hand, is largely driven by consumption and, to some extent, tech. There is a growing divergence between Nifty and NSE500 weights. So, while the economy and broader markets would still rule at high valuations in Dec-24, such optimism may not reflect in the broader Nifty. Manufacturing and infrastructure are expected to gain prominence as prime themes in the year 2024.”

Bond rally only at the short end

The fall in rates is likely to be restricted to the short end of the curve. The 10-year yield is at one of its lowest points relative to the repo rate, having rallied sharply in CY23. This leaves little room for further upside in the 10-year yield. The short-end yields, however, falling by 50-75bps, depending on how accommodative the RBI turns.

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