As we welcome a new year, a fresh outlook is always important. Let’s look at the opportunities and threats in the upcoming year for equity market investors.
Union Budget and General Election
The Union budget is usually the first major domestic event that we look forward to. The general elections in April-May 2024 will be a major headline event. The Budget may follow election results and could be presented only in July after the new government is sworn in. The markets seem confident of the continuing momentum regardless of election outcomes. The markets have a way of responding to sentiment with force around election times. The truth is that markets have risen irrespective of who was in power and any correction will be a good opportunity to increase allocation to equity.
Global Elections and Foreign Investments
Along with India, elections are also happening in the USA around November 2024. Events happening in the USA have a bearing on the global markets. FIIs have reduced their stakes to an all-time low of 16%. Domestic flows have steadied markets even as FIIs have pulled money out. Clearly, retail and Mutual Fund participation is a force to reckon with. The capital could return after the elections as FIIs gain clarity on the future course after both elections are done with.
Challenges in the USA
With elections around the corner, the existing dispensation in the USA is in a tight spot. The American public wants to hold the government accountable for runaway inflation. The blame game is not logical, after all, high inflation was a result of the Russia-Ukraine war. The Fed’s response to COVID-19 in 2020 was to take interest rates to an ultra-low level. And has spent the better part of 2022 and 2023 undoing past actions. The Fed may attempt to keep monetary policy more accommodative in 2024, but policy decisions seem like a function of inflation. With high inflation and high interest rates, the new government will face a tough situation from day one.
If there’s one thing that history teaches us, it is that not every event can be anticipated. Russia’s attack in early February 2022 took people by surprise. And in October 2023, none of us had any clue that there would be another major escalation between Hamas and Israel. So, we can’t discount surprise events from 2024. Any negative outcome that spoils the sentiment leads to a medium-term crisis. But one must remember, the Indian equity market is a compelling buy on any correction in a 3–5-year perspective. So, any correction mild or significant, should be used to increase allocation to India.
Rural Economy and Weather Patterns
India has had a challenging year, starting with the North Indian town of Joshimath sinking and ending with the havoc that cyclone Michuang wreaked in the South.
The weather is a key element in determining the health of our rural economy. An uneven and delayed monsoon has affected agricultural output. A normal monsoon in 2024 may refill reservoirs and bring a fillip to the rural economy. This could translate positively for automobile and FMCG companies that have had muted numbers on the rural side for years together. The policy changes and shocks of demonetisation, GST, and COVID are still working through the rural economy. Whereas urban centres have largely recovered from COVID.
Resilience of the Indian Market
Over the years, India has overcome health crises, conflicts, and scams. Markets have been resilient through volatility. One can’t afford to sit on the sidelines for the perfect moment. During COVID, people were waiting for the NIFTY to crash to 6K, today we’re well above 20K.
Precious Metals Outlook in 2024
Precious metals like Gold and silver are also expected to do well in 2024. The expectation is that Central banks will start to reduce interest rates. In high-interest rate eras, the money flows towards treasuries and government securities. Once interest rate starts to reduce, investors may start looking at other safe alternatives or may be willing to take on more risk. Gold, Equity, and Real Estate might benefit from this trend. If inflation continues to be high, the lowering of rates that is expected to begin in 2024 might get pushed to 2025.
Investor Strategy and Controlling Controllable
An investor should remember that they can only control the controllables. Take Yuvaraj Singh, who should be celebrated as the hero of the 2011 World Cup for his impactful performances throughout the competition. Instead, the most talked about event is MSD’s six and Gambhir’s performance in the final. Consistent actions will compound over time – it’s not about the single six you can hit in 2024. It’s time to play a steady game with a long inning like Yuvaraj.