After the choppy waters of 2023, here comes 2024

As we look towards 2024, financial market outlook for Indian investors appears cautiously promising. According to a Reuters poll, India’s stock market is expected to reach new heights in the next six months and rise over 10% by the end of 2024, fuelled by the country’s sustained expansion as the fastest-growing major economy. The benchmark index - BSE Sensex - was projected to surpass its previous highs, optimism stemming from India’s robust economic growth, which is expected to remain over 6% in the coming years. Moreover, a major sell-side research anticipates that India’s real GDP growth will remain stable at around 6.3% year-on-year, with first half of 2024 expected to be driven by subsidies and transfer payments leading up to the general elections, while the second half should see a re-acceleration in investment growth, particularly from the private sector.

Within equities, value stocks, may be favoured as compared with growth stocks in the near term as the high-interest rate environment typically favours value and the current rally cools off. Corporate earnings may also be expected to increase, although the growth rate might moderate compared to the previous year unless uncertainty over inflation and RBI rate action abates.

Overall, this presents a landscape of opportunity, backed by a strong economic foundation and a positive outlook on stock market performance. However, investors should remain aware of potential risks, including political uncertainties surrounding the general elections and global economic factors that could impact market dynamics.

What of other asset classes? For one, global supply chain disruptions, on account of the Russo-Ukraine theatre and the Middle East conflict post the attacks on Israel, will see elevated commodity prices. Even now, notwithstanding a dithering US Federal Reserve, bonds are seeing a rally and as inflation cools coupled with recession fears, this trend may continue, as central bankers rush in interest rate cuts to stave off a slowdown. 

Real estate remains a bit of an enigma. While pent up demand (because of the pandemic years) yielded robust sales despite higher interest rates, going forward it may see secular growth. Commercial real estate too sees demand and supply matching in the grade-A space. As a yield generating investment, REITs and InVits may see issuances to free up capital, on the back of the government’s infrastructure push leading up to general elections in 2024. 

On the flip side, inclement weather and continuing effects of climate change, the rural economy deserves a closer look even as the incumbent government gears up for elections. 

All these contrasts with 2023, where global financial markets have navigated a landscape marked by significant volatility, influenced by a mix of economic, geopolitical, and pandemic-related factors. For Indian investments, this environment has presented both challenges and opportunities. 

The year witnessed fluctuations in stock markets worldwide, affected by ongoing financial recoveries, inflation concerns, and central bank policies. In India, these macro trends intersected with local factors such as corporate earnings, government reforms, and sector-specific developments, impacting investor sentiment which was largely cautiously optimistic. 

However, unlike now, savers have remained cautious, considering the potential risks from worldwide financial dynamics, including interest rate changes in the US and EU, and China’s fiscal policies. On the fixed-income front, bond markets faced pressure from inflation and rate hikes (RBI’s monetary policies aimed at controlling inflation had a direct impact on bond yields and investor strategies).

The year also saw a rise in alternative investments in India, with a growing interest in digital assets, albeit with regulatory uncertainties. Real estate, traditionally a favoured asset class, continued its path to recovery, benefiting from increased liquidity and government incentives. 

Global economic fluctuations, however, remain a concern even though India’s steady domestic demand and progressive policies may cushion against major downturns. Investors would be well advised to diversify their portfolios and stay informed on market trends to use the opportunity and build long term investment portfolios, if needed, via a SEBI registered intermediary (such as an investment advisor).

(The author is the managing partner with Aryzen Capital Advisors)