Although Yadav has stated that the government will stick to its fiscal consolidation glide path, this interim budget may not have much impact on the market as a whole.
In an interview with Mint, Yadav talked extensively about key indicators for the market in 2024, Indian stock market trends, global economy, foreign institutional investor (FII) and 2024 IPO market.
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Edited Excerpts:
1. Could 2024 be the ninth consecutive year that the index returns in the positive view of the upcoming events—two budget sessions, an important national election, and an election in the United States? What does the stock market in India look like in 2024?
The ongoing streak of consecutive years with positive index returns marks the longest in the history of financial markets. This trend raises concerns that 2024 may witness a shift to negative index returns. Although there has been much discussion about India’s economic resilience as the country approaches elections this year, election results do not appear to be a major risk. Current indications suggest a high probability of the incumbent party, the Bharatiya Janata Party (BJP), securing another term, ensuring political continuity.
However, the main threat could stem from global economic shocks. Historically, rate cycles have often been followed by recessions, albeit with varying time lags. Given that the recent rise in rates in the United States (US) is among the steepest in its history, there is a considerable possibility that the US could be poised to enter a recession, if it is not already there.
2. Will the Indian market be the best place in the global economy in 2024?
Even in the event of a global economic slowdown, India could be relatively resilient. The country is currently reaping the rewards of significant structural reforms implemented by the government in recent years, such as the IBC, RERA and the ongoing digitization process. These reforms contributed to strengthening India’s economic resilience.
Moreover, India’s external indicators are also favorable. With comfortable oil prices, a stable rupee, and an improved current account deficit, the external economic factors are ranked positively. This combination of domestic structural reforms and favorable external conditions positions India to navigate potential challenges arising from a global economic slowdown with greater resilience.
Also read: Budget 2024 expectations: Focus may be on revitalizing rural economy; more sectors can come under MORE: Nuvama’s Rahul Jain
3. The next major event that market participants will be watching is the Account Vote – Interim Budget 2024. Which sectors are most likely to remain in the spotlight during the interim budget?
We anticipate that the upcoming Accounts Vote is unlikely to be eventful, with any significant announcements reserved for the main budget after the next elections. Despite the subdued nature of the interim budget, India’s unwavering emphasis on capital expenditure (Capex) is expected to continue. Therefore, the sectors that are likely to gain attention during this interim period are infrastructure, manufacturing and their related industries.
4. What are your main expectations from interim budget 2024?
We believe that the government will stick to its fiscal consolidation glide path, but overall, this interim budget could most likely be a non-event from a market point of view.
Also Read: Budget 2024: Focus on fiscal consolidation for long-term economic stability, expects Wright Research’s Sonam Srivastava
5. In this interim budget, what are the main themes that investors should look at?
Key themes are likely to remain the same. Fiscal consolidation, focus on capital expenditure, make in India and improving ease of doing business.
6. Could you provide a short list of key indicators for the market to watch out for in 2024, and how do you expect the market to respond to these indicators?
Some of the key indicators that could affect the markets include:
Global Inflation: As in the previous year, inflation is poised to be a major market driver in the current year. While inflation has moderated considerably, the crucial question remains: Is it low enough for central banks to consider raising rates? Any increase in inflation could potentially exert a negative impact on the markets.
Interest rates: Market expectations are leaning towards a rate cut by the Fed exceeding 1.25%, but the central bank is signaling a cut of 0.75%. So far, the Fed’s predictions have proven accurate, prompting the market to recalibrate its expectations. Even with tax cuts, interest rates remain relatively high, potentially affecting the broader economy.
Corporate Income: While corporate earnings have provided support in recent quarters, revenue growth has been somewhat subdued, with margin expansion driving revenue growth. Anticipating no further marginal expansion, the focus shifts to the need for revenue growth. The earnings trajectory is pivotal, especially given the already elevated valuations in the market.
Choices: With more than half of the global population slated to vote this year, market dynamics can be influenced by election results. The impact varies depending on specific election results and their implications for economic policies.
Geopolitical Risks: Although geopolitical risks are ever-present, ongoing conflicts in Europe, tensions in the Middle East and recent issues in the Red Sea introduce an increased level of potential risks that could significantly impact the markets.
In summary, global inflation and interest rates are likely to remain key indicators, with a crucial interplay between them. Additionally, the trajectory of corporate earnings and the results of elections are some additional considerations. Geopolitical risks, acting as a wild card, have the potential to introduce unforeseen challenges to market stability.
Also Read: Budget 2024: Any reduction in capital or defense spending may hamper market momentum, says Apurva Sheth of SAMCO Securities
7. In 2024, the US Federal Reserve may decide to stop raising interest rates. What kind of FII activity do you foresee for the Indian markets in 2024?
We believe the current Fed rate cycle may be over. However, we expect the Fed to be on pause during the next policy meetings before looking to cut. This is likely to support FII activity in India. However, the extent of FII activity is likely to be driven by the global risk to sentiment.
8. How do you see the IPO market of 2024?
The Indian IPO market in 2023 was very strong. The SME IPO in particular had a very good year in 2023. IPO markets tend to have a high correlation with how the market in general is doing. If the equity momentum continues, then the IPO market will remain robust; however, if we see any correction, IPO activity can stop very quickly.
Also Read: Budget 2024 Expectations: Nirmal Bang highlights 6 key issues that could dominate the Interim Budget 2024
Disclaimer: The above views and recommendations are those of individual analysts, experts and trading companies, not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 24 Jan 2024, 11:44 IST
(tagsTo Translate)Interim Budget 2024