‘Froth overdone in midcaps, smallcaps, switch to largecaps’
What is your assessment of the market performance in 2023?
Market performance was good in 2023 because the economic outlook has turned positive.
Macro factors are stable and at the micro level, critical industries are starting to show a pick-up.
On the macro front, the current account deficit has remained reasonable.
Inflation has remained within the target range despite external shocks. At the micro level, the key positive is that the real estate sector has come back – and this is a big change from the past decade.
In our view, if the 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 follow-on effect on manufacturing as durable goods demand increases.
Equally importantly, the construction sector is a big job creator.
Also Read: Can Nifty 50 repeat the feat of 2023 in 2024? Experts warn of challenges
Do you think the current market valuation is unsustainable?
Market valuation needs to be seen in the context of the earnings outlook.
If we look purely at multiples (P/E or P/B) we find that in the large-cap space, the multiples are slightly 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 somewhat.
In the small-cap and mid-cap space, we do think the froth is overdone and would recommend booking profits and switching to large caps.
There are concerns that the US may see a significant economic slowdown in 2024. How can it impact our market?
We have consistently held the view that the concerns about the US slowdown were overdone, and this view has played out.
The Fed has managed a soft landing – inflation has moderated with the employment situation still very healthy.
Going forward also, we think the US economy can avoid a recession. Specifically, there are signs that homebuilding activity in the US is picking up and if this sustains, a recession is unlikely.
With a healthy economic outlook, we expect only modest rate cuts from the Fed. And these small rate cuts do not materially change the outlook for the Indian market.
The performance of the Indian market will be driven more by earnings growth and earnings outlook, than by small moves by the Fed.
Also Read: 5 key macro themes that will influence the market in 2024
What are some top investing themes for 2024? What segments/ sectors you are bullish about for the next year?
Our sector preferences reflect our view on the economy. Given that we expect a cyclical upswing in the economy, we have a preference for domestic cyclical sectors – sectors that see the greatest swing in a recovery.
These include industrial and capital goods, cement, automobiles, insurance and asset management companies.
You would note that we are not including banks in our preferred sectors – this is because we think that the competitive intensity in the sector is very high. We are relatively cautious about 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: What sectors should you bet on in 2024? Here’s what 5 experts say
What is your outlook on domestic inflation and growth in 2024?
On the growth front, there is a sanguine expectation that it will not be a cause for concern in the upcoming 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 perspective underscores a balanced expectation that factors influencing inflation will remain within a range deemed acceptable by the central bank.
An interesting trend of the recent time is the strong rise of domestic retail investors which has saved our market from crashing in times of foreign capital outflow. What has facilitated the rise of retail investors?
The amalgamation of an upward-trending market and a healthy economy has acted as a catalyst for the increased participation of retail investors.
Also Read: Number of BSE-registered investors see a jump of 27% YoY in 2023. What does it mean for the market?
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 02 Jan 2024, 11:56 AM IST
