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Since the tug of war between the FIIs and DIIs continues, volatility will remain high in the near-term.

This volatility may be used by investors to churn their portfolios, said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

A significant anomaly in the market is the high valuation in some pockets and the fair and even attractive valuation in some others.

For instance, some PSU stocks are flying high on hopes based on order flows. It will take a long time for these order flows like in ship building, for instance, to translate into profits. And there is no guarantee that it will happen, said Vijayakumar.

On the other hand, pockets like banking are fairly valued and the performance and prospects are good. There is value in bluechips like HDFC Bank, he added.

The year-end rally in 2023 has front-ended some equity returns and we see a relatively muted year, Emkay Global Financial Services said in a report.

"Our Dec-24 Nifty target is 24,000, implying an 11 per cent return. The target is below the current Nifty PER of 20.0x, as we factor in the defensive nature of the Nifty, downside risks to EPS, and pressure on the BFSI sector," the report said.

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.

This is also visible in the 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. This is also illustrated by the widely differing beta distribution of the two components of the two indices, the report said.

Financials (29.9 per cent of the NSE500) should be sluggish stock performers over this year. Falling interest rates would help margins for large banks, which form a larger part of the sub-index.

This would be a drag on the index performance and will, we believe, drive a de-facto de-rating in the index.

“We expect the market returns to be dad-bod shaped: bunched in the middle. Most of the macro positives would be huddled in Apr-Sep 2024: the election results, a strong budget, Fed and RBI rate cuts, and a possible margin windfall from weaker commodity prices," the report said.

“Our 2024 year-end Nifty target of 24,000 imputes an 11 per cent return for the benchmark, while we expect SMIDs to outperform. Our model portfolio focuses on large-/mid-caps and we are UW on Financials and OW on Consumer Discretionary.

"Key themes for 2024 are rate cuts, the budget and reform, and probable revival in mass segment spending. Earnings growth should continue in the mid-teens with rising ROEs. SMID earnings growth should exceed the Nifty and drive further outperformance," the report said.