What is your estimate of the market performance in 2023?
Market performance was good in 2023 as the economic outlook turned positive.
Macro factors are stable and at the micro level, critical industries are beginning to show recovery.
On the macro front, the current account deficit remained reasonable.
Inflation remained within the target range despite external shocks. At the micro level, the key positive is that the real estate sector is back – and this is a big change from the past decade.
In our view, if home building activity remains strong, it will drive the other sectors.
Specifically, once people have homes, they become buyers of durable goods.
So home building then has a knock on effect on manufacturing as durable goods demand increases.
Just as importantly, the construction sector is a big job creator.
Also Read: Can Nifty 50 repeat 2023 feat in 2024? Experts warn of challenges
Do you think the current market valuation is unsustainable?
Market valuation must be seen in the context of the revenue perspective.
If we look only at multiples (P/E or P/B), we find that in the large cap space, the multiples are a little expensive relative to history, but the earnings outlook is better than history.
So our view is that, if the earnings come through and you stay invested for three years, then returns – driven by earnings growth – can be reasonable returns even if the multiples compress a bit.
In the small-cap and mid-cap, we do think the hype is overdone and would recommend booking profits and switching to large caps.
There are concerns that the US may see a major economic slowdown in 2024. How may it affect our market?
We have consistently thought that concerns about the US slowdown are overblown, and this view has played out.
The Fed managed a soft landing – inflation moderated with the employment situation still very healthy.
Going forward as well, we think the US economy can avoid a recession. Specifically, there are signs that home building activity in the US is increasing and if this continues, a recession is unlikely.
With a healthy economic outlook, we expect only modest rate hikes from the Fed. And these small tariffs do not materially change the outlook for the Indian market.
The performance of the Indian market will be driven more by growth in income and the prospect of income, than by small movements of the Fed.
Also read: 5 key macro themes that will affect the market in 2024
What are some key investment themes for 2024? Which segments/sectors are you optimistic about for the coming year?
Our sector preferences reflect our view of the economy. Given that we expect cyclical growth in the economy, we have a preference for domestic cyclical sectors – sectors that see the biggest swing in recovery.
These include industrial and capital goods, cement, automobiles, insurance and management companies.
You will notice that we do not include banks in our preferred sectors – this is because we believe that the competitive intensity in the sector is very high. We are relatively cautious on FMCG and IT.
Across the cap range, we have a clear preference for the large cap over the small and mid cap.
Also read: Market Outlook 2024: Which sectors should you bet on in 2024? Here’s what 5 experts say
What is your outlook for domestic inflation and growth in 2024?
On the growth front, there is a brave expectation that it will not be a cause for concern in the coming year.
This optimistic outlook stems from a confluence of factors, including stable macros, robust corporate performance and overall positive economic sentiment.
Shifting the lens to inflation, the prevailing belief is that it will navigate within the tolerances set by the Reserve Bank of India (RBI).
This nuanced outlook underlines a balanced expectation that factors affecting inflation will remain within a range deemed acceptable by the central bank.
An interesting trend of recent times is the strong growth of domestic retail investors, which has saved our market from crashing in times of foreign capital outflow. What facilitated the growth of retail investors?
The combination of an uptrending market and a healthy economy acted as a catalyst for the increased participation of retail investors.
Also Read: Number of BSE-registered investors sees 27% YoY jump in 2023. What does it mean for the market?
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Disclaimer: The views and recommendations above are those of individual analysts, experts and second-hand companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 02 Jan 2024, 11:56 IST