Indian markets have been one of the best-performing markets in the world in 2023. In an interview with Mint, Ajit Banerjee, Chief Investment Officer of Shriram Life Insurance Company says he is positive about the domestic market for 2024 and expects the foreign capital inflow to continue. Edited excerpts:
What is your view on the market’s performance in 2023? What is the outlook for 2024?
Indian markets have undisputedly been one of the best-performing markets in the world in the calendar year 2023 (CY23).
Over the last year, the large caps have delivered around 15 per cent returns and mid and small caps around 40 per cent returns.
Given the government’s thrust on infrastructure development, indigenisation of the defence sector, and developing India into Atmanirbhar Bharat, PSUs as a segment have given 70 per cent returns which is phenomenal.
With the positive global cues coming in the form of the Fed starting their rate cut cycle in the first half of the calendar year 2024 (H1CY24), commodities prices continuing to ease, state elections overhang behind us and stable central government likely to be formed in FY25, so much of the positives seem to have been built in and market rallying accordingly.
As the positive momentum is expected to continue in 2024 with rate cuts starting, FIIs will continue to invest in the Indian market duly supported by DII and Retail participation the market rally will continue.
However, since most of the positives have been factored already in 2023 even though we can expect the market to be positively biased, the quantum of returns may not be to the magnitude of 2023 levels.
Apart from this we also have to see how recession sets in in developed countries like the US, and Europe, economic recovery takes place in China and last but not least geopolitical crisis takes a turn.
We see healthy buying interest from FPIs. Can this momentum be sustained?
With the peak interest rates behind us both in the US, Europe and India, the Indian economy is expected to grow more than 6 per cent in FY25.
FPIs reduced portfolio allocation to China markets and have almost zero exposure to the Russian market.
Healthy corporate earnings are expected to continue and a politically stable environment will prevail in India, so the bulk of the FPI money will continue to pour into India in the next year as well. There shouldn’t be any iota of doubt about this.
Also Read: Market Outlook: 6 key sectors investors should watch out for in 2024
What sectors can hog the limelight in the next year?
BFSI, Infrastructure sectors, capital goods, cement, and realty sectors are expected to do well.
With rate cuts expected to start next year and focus on developing the next level of technology and AI gathering pace, one can think of taking exposure in the IT sector from a long-term perspective.
The Indian economy is in good shape. What measures by the government can give further impetus to the economy? Do you expect these announcements in this Budget?
The economy is quite firmly placed from a growth perspective, though it is predominantly investment-driven growth.
Consumption needs to pick up, but there are still some pain points visible in the rural economy. RBI’s growth forecast for FY24 has been revised to 7 per cent from its earlier projection of 6.5 per cent.
The Indian economy has shown resilience in the period of extreme global uncertainty and geopolitical turmoil.
The focus on continuing with the investments in infrastructure should continue both at the central and the state government levels.
The PLI schemes and emphasis on strengthening our manufacturing sector are paying off well.
The world is looking at India as a genuine trustworthy supply chain partner which should be capitalised further.
The government must ensure relaxation and simplification of rules and tax laws which in turn can make Indian products and services more cost effective and competitive in the global market.
Global warming and its impact on climate change have already started showing up across the globe including India leading to rising temperatures, drought-like situations, and unseasonal heavy rains leading to damage to crops.
Measures like improvement in the supply chain, storage and logistics, providing financial relief to the agricultural and rural sectors need to be improved further to maintain an all-inclusive growth of the nation.
The February 2024 Budget will be a vote of account so there won’t be many related announcements in that.
We can expect some announcements in this direction in the next full-fledged budget for FY24-25 expected to be presented after a new government is formed.
What are your expectations from Budget 2024? What are the key things for the market to watch out for in this Budget?
Given the General Elections to the country due in May/June 2024, the Finance Minister will be first presenting the Vote on Account to Parliament which primarily is an advance grant to the government from the Consolidated Fund of India to cover short-term expenditure requirements until the new full-fledged Budget is presented.
Once the new government comes to power after the general elections are held, a full-fledged Union Budget will be prepared.
Therefore, in the Vote on Account, we can expect the government to seek funds to continue its existing welfare schemes or announce new schemes which would be more targeted towards the benefit of Aam-Aadmi or the rural population which can help give some additional disposable income to the hand of rural masses as rural consumption is still lagging behind the urban consumption.
What is your view on the recent commentary from the US Fed and the RBI? When do you expect rate cuts?
Much as per the expectation of the market the US Fed kept rates unchanged at 5.25-5.5 per cent and indicated that the rate hike cycle may be over with the dot plot showing no further rate hikes were pencilled in.
The most dovish part of the announcement was when Fed Chair Jerome Powell indicated that policymakers had started discussing the timing of the rate cut cycle.
Since there wasn’t any specific mention of ruling out any near-term rate cuts, as a sequel, investors priced in a rate cut as early as March 2024 which seems to be a bit early perhaps.
The Fed may observe the economic conditions in the first quarter of the calendar year 2024 (Q1CY24) and start its rate cuts from Q2CY24.
The Reserve Bank of India’s (RBI) Monetary Policy Committee unanimously decided to keep the repo rate unchanged at 6.5 per cent for the fifth time in a row which was in sync with the market consensus view.
It was also widely assumed that the rate-setting panel would also retain the policy stance unchanged with a focus on the withdrawal of accommodation.
From the RBI Governor’s comments, it can be inferred that the MPC has drawn some comfort in the fact that there has been broad-based easing in core inflation, which also indicates that the RBI’s monetary policy action has been bearing results of successful disinflation.
However, the governor has expressed concern about potential inflation risk that can emanate from food inflation, leading to an uptick in November and December inflation numbers.
The Nov’23 inflation print also came higher at 5.55 per cent echoing RBI Governor’s concern.
The tone of the MPC seemed to be very well balanced between the need for controlling inflation on the one hand and retaining the focus on the same.
Simultaneously, it cautions against the risk of over-tightening measures which can arise.
From the Governor’s statement, we feel that RBI’s MPC will remain on a pause on the rate front up to the first half of the financial year 2025 (H1FY25) focussing on liquidity measurement management to ensure liquidity remains neutral to tight in the near term to align to policy stance. We can expect rate cut-related action by RBI in H2FY25.
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Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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