India’s Market Odyssey: 2023, A stellar year, 2024, A year of opportunities

Amid a global scene marred by economic uncertainties and unpredictable market swings, India’s economic performance stood resilient. The country navigated the choppy international waters with a rare blend of prudence and boldness. Inflation, a global spectre, was tackled in India with a mix of strategic monetary policies and regulatory foresight. This approach not only steadied the immediate economic ship but also set a course for sustainable, long-term growth.

The Indian market’s resilience was further underscored by the rate hike cycle nearing its peak. This suggested that the worst of monetary tightening might be over, paving the way for more relaxed policies ahead. Retail investors, sensing these positive undercurrents, stepped up their game. Investors poured money into equities, and initial public offerings towards the latter half of the year, and the participation was fuelled by both optimism and the promising stability of the Indian economy.

Not surprisingly, India’s Nifty 50 reflected this underlying economic vigour and marked its eight year of consecutive good fortunes with gains of In a year when global indices often wavered, the Nifty 50 charted a steady, upward course. But the real story, perhaps even more compelling, was in the mid and small-cap segments. These segments, often seen as the more adventurous cousins of the large-cap stocks, outshone with remarkable agility. The Nifty Midcap 100 and the Nifty Small cap 100, with their impressive gains of 47% and 56% respectively, weren’t just numbers on a chart. They were indicators of a broader, deeper confidence in the Indian market – a confidence that spread across sectors and market capitalisations.

Corporate India, meanwhile, has been a pillar of strength. In an environment where global companies often struggled to find their footing, Indian firms not only maintained their balance but also seized new opportunities for growth. India’s corporate earnings have been resilient, and Indian manufacturing and domestic consumption has remained steady supported by the growth under currents.

The Nifty 50 gained about 20% in 2023, which is a strong rally and marks an eighth consecutive year of positive gains. This is not merely a sign of good fortune, but it’s a narrative that is deeply rooted in India’s robust economic fundamentals, consumption story, and economic strength.

The story of 2023 got a further boost towards the fag end from the gradual moderation of inflation and the anticipated peak of the rate hike cycle to the buoyant surge in retail equity participation. The ruling party’s march in key states also buoyed the sentiments which drove much of the gains of the market in the last quarter. The backdrop of this economic canvas was further enriched by the strong and consistent corporate earnings, adding a layer of confidence and optimism to the market sentiment.

The US Factor – Steering the Global Economy

Shifting focus to across the world, the Federal Reserve’s actions in 2023 were bold. In a swift 15-month period, the Fed implemented an aggressive 525 basis point rate hike – a strategy not seen in the last four decades. This was a decisive move to quell the rising tide of inflation. These decisions by the Fed reverberated far beyond the US borders, affecting global financial markets, India included.

The brakes on inflation so far seem to have paid off. The US Consumer Price Index (CPI) inflation began showing signs of a downtrend, with projections pointing towards a fall to 2.3% by the end of 2023.

Nevertheless, While there’s a general air of optimism about the direction of the US economy, there’s also a sense of caution. Some forecasts hint at a scenario where 2024 might see higher interest rates and a slower pace of growth than what many might expect. This caution stems from concerns that inflation may prove more tenacious than current predictions suggest, potentially leading to a more prolonged period of high interest rates. Such a scenario could have significant implications for global markets, including India.

An important piece in this economic puzzle is the US labor market. The recovery of the labour participation rate to pre-pandemic levels and a high but declining ratio of job vacancies to unemployed individuals are indicators worth close attention. These metrics provide insights into the health of the US economy and, by extension, its influence on global economic dynamics.

In sum, the US’s economic trajectory in 2023 and the forecasts for 2024 present a complex, intertwined narrative. The outlook still remains of optimism tempered with caution. As the world navigates the post-pandemic era, the US’s economic path will be a critical barometer for the global markets, India’s included.

But there may be some good cheer on the horizon. Most forecasters point that towards the fag end of 2024, US Fed may ease the pressure on interest rates marking a reversal in the aggressive rate hikes. If this happens, global markets, particularly emerging markets like India will have plenty to cheer about.

India’s Economic Resilience in a Sluggish Global Environment

While the global economic landscape remains somewhat lacklustre, India’s economic narrative tells a different story. Amidst a world grappling with tepid growth, India stands out for its robust economic performance with its latest PMI coming in at 54.9, which has been consistently high over the past year. On the other hand, latest figures in the global manufacturing landscape present a tale of contrasting fortunes. Out of 15 major economies, 11 reported PMI levels below 50, signalling a broad-based contraction in their manufacturing sectors.

The India Services Purchasing Managers’ Index rose to 59.0 in December from November’s one-year low of 56.9 which shows expansion for 29 straight months and is well above the 50-mark reading which separates growth from contraction. The activity shows increase driven by demand, job creation and business optimism.

Signs on the capital expenditure front through the investment cycle in India are showing signs of a significant revival. According to the Centre for Monitoring Indian Economy (CMIE), new project announcements in the December-ended quarter reached ₹2.1 trillion, up nearly 15% from the previous quarter. This uptick, primarily driven by private companies, signals a resurgence of confidence in India’s economic future.

On the GDP front, the outlook is promising. The National Statistical Office (NSO) projects India’s growth for FY24 at 7.3%, surpassing the Reserve Bank of India’s (RBI) estimate of 7%. This pace not only keeps India in the lead as the fastest-growing major economy but also maintains the momentum from its 7.2% growth in FY 2022-23.

Peering into the future, the Centre for Economics and Business Research (CEBR) envisions India as a global economic powerhouse by the century’s end. Post-2080, India’s GDP is projected to eclipse both China and the US, with a forecasted growth spurt from 2024 to 2028. By 2032, India could rank as the world’s third-largest economy. This growth trajectory, however, comes with its share of hurdles, including poverty, inequality, and the need for robust infrastructure development.

The International Monetary Fund (IMF) recognises India’s economic strength and potential for accelerated, sustainable growth, projecting it to become the third-largest economy by FY28. But challenges loom on the horizon, including global economic slowdowns and concerns over India’s public sector debt potentially exceeding 100% of GDP in the medium term.

Charting the course for 2024 – A blend of optimism and caution

As we set sail into the fiscal year 2024, the Indian market is well balanced. A mix of domestic vibrancy and global economic shifts is shaping a narrative full of potential yet peppered with caution. But valuations remain high, so one has to be cautious on that front. Domestically, the political landscape in India, characterised by its promise of stability and continuity, alongside a historic high in institutional flows, sets the stage for what could be a dynamic year.

While there’s plenty going right, the path ahead is nuanced. Post-pandemic profit growth might see some moderation, especially when compared to the highs of the recovery phase. This anticipated normalisation of profits, coming off a higher base, is a key theme to watch. However, India’s consumer sector remains robust. Despite stretched valuations, the underlying consumer demand in India is expected to stay strong, feuling much of the economy. Infrastructure growth and capital expenditures continue to inch higher shoring up the confidence further in Indian markets.

The IPO market in India is on the brink of welcoming fresh names, with several tech and internet unicorns poised to make their debut. This influx of new names into the public market is not just a sign of market expansion but also a reflection of the strong Indian business landscape. Further, the banking sector, in particular, is gearing up for a surge in demand for capital, driven by an uptick in corporate capital expenditures. This indicates a more broad-based recovery, extending beyond consumer-led growth to more industrial and corporate investment-driven growth.

The overall sentiment for the Indian market in 2024 is one of heightened expectations, but it comes with a caveat of choppiness, which could present the opportunities. Deal-making and strategic investments are also likely to be key features of the market landscape. Investors’ and market participants would do well to keep their powder dry to capitalise on opportunities that this volatility might present.

Share this Article