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Navigating the Indian economic and stock market landscape for 2024

09 Feb 2024

Introduction

In 2023, the stock market performed well, witnessing notable gains in both the NIFTY and the SENSEX, both of which rose by around 17%. Similarly, economies like the United States and the United Kingdom experienced bullish trends, with the UK's primary stock market index showing a gain of 36 points or 0.49% from the beginning of 2023.

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As we draw closer to the year 2024, experts are predicting a dynamic economic and stock market landscape. In this article, let us delve into the economic and stock market predictions for the upcoming year.

GDP expectations

Economists anticipate a real GDP growth to reach 6.7% year on year, surpassing earlier estimates of 6.4% for the first quarter of 2024. Among the 13 major economies examined by Goldman Sachs research for their 2024 global outlook, India leads with a projected growth rate of 6.2%, followed by China at 4.8%. 

Indian elections

India awaits general election results in the summer of 2024, which is expected to bring about a shift in the drivers of economic growth. Historical data suggests that a stable government with a clear mandate tends to boost investor confidence and yield positive market outcomes. A fragmented electoral outcome can lead to market turbulence. 

As the 2024 election approaches, consumption growth is expected to rise due to increase in  subsidies and transfer payments. There is an increased allocation of funds for rural employment programs, higher cooking gas subsidies, and an extended food subsidy program.

Post-election, while government capital expenditure is anticipated to slow down, private investment is expected to accelerate. Indian companies are well-prepared for this shift, given their well-capitalised bank balance sheets and deleveraged manufacturing balance sheets. Indian companies also look to benefit from the "China-plus-one" strategy adopted by the world.

Rise and fall of Foreign Direct Investments 

Despite a decline in net FDI, India's economy remains unaffected by external vulnerabilities. The FDI inflow is projected to stay subdued, falling from $44 billion in the fiscal year 2020-21 to an estimated $22.1 billion in the 2023-24 fiscal year. Slower economic growth in India's trading partners has contributed to a decline in exports.

The Reserve Bank of India is expected to continue intervening in the foreign exchange market to maintain the low volatility of the Indian rupee against the US dollar.

Inflation 

As India grapples with food and oil supply shocks that have led to increased food inflation, the government has taken measures to mitigate the impact on consumers. These include suspending rice exports and extending subsidies on cooking gas and food. Economists predict that food inflation will remain high in the first half of 2024, resulting in headline inflation at 5.4% year-over-year during that period. 

This is well above the Reserve Bank of India's target of 4.0%. For the entire year, they anticipate headline inflation at 4.9%, with core inflation at 4.3%.

Sectors expecting growth

“How to predict the stock market?” is a common question investors face. The answer to this is not that simple. However, the initial step is to pick sectors that are likely to outperform. Sectors such as finance, automotive, consumer goods, and industrial sectors are positioned for outperformance and can expect growth in 2024. 

Once analysis of each sector is done, looking for stocks that will rise higher than the rest is the ideal way to go ahead. 

Conclusion

Despite global challenges, the Indian economy remains robust, driven by factors like domestic demand, infrastructure investment, and a resilient financial sector. However, inherent risks exist like elevated inflation and stringent monetary policies

Nevertheless, there is optimism for 2024, with expectations of a restart of the bull market rally for the S&P 500, driven by the US Federal Reserve's shift from interest rate hikes to rate cuts. While predicting year-to-year market performance remains a complex endeavour, analysts generally hold a positive outlook for 2024 when it comes to making Indian stock market predictions.

Investors should adopt a long-term perspective and look for fundamentally strong stocks.  Maintaining prudent portfolio diversification strategies may also help you to navigate potential market fluctuations in the coming year.

 

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