In a comprehensive analysis of the market landscape, Trideep Bhattacharya, CIO – Equities at Edelweiss Mutual Fund, reveals that Indian markets are currently trading at a 15% valuation premium compared to the 10-year average. In his equity outlook for 2024, Bhattacharya anticipates a year of multiple transitions, with a particular focus on political uncertainty and significant global events.
The central theme of discussions and analyses, according to Bhattacharya, will shift from uncertainty about interest rates to “Political Uncertainty” as 2024 witnesses national elections in the United States and India, followed by the UK elections in early 2025. This political rhetoric is expected to significantly impact global markets, shaping geopolitical contours in the coming years.
Bhattacharya highlights two positive factors for Indian equities in the medium term. Firstly, India Inc.’s balance sheets are in a de-leveraged mode, operating at high-capacity utilization. This sets the stage for a potential capital expenditure cycle in 2024. Secondly, moderating inflation in India is expected to enhance consumers’ spending power, contributing to increased demand for goods and services.
Predicting a decline in inflation and interest rates in 2024, Bhattacharya foresees an influx of money into consumers’ pockets, stimulating demand in specific sectors. While large-cap stocks are trading at par, mid- and small-cap stocks are notably higher than their 10-year historical average, presenting a favorable scenario for investors seeking superior earnings growth over the medium term.
Bhattacharya advises investors to maintain a balanced portfolio across market capitalizations, considering the present market conditions. He acknowledges global growth hitting its lowest point in 2024, anticipating a slowdown in the first half with a potential rebound in the second half. The rebound is expected to extend into 2025, influencing asset allocation strategies for future investments.
Despite the positive outlook, Bhattacharya remains cognizant of challenges such as unfavorable election outcomes, geopolitical events, and higher commodity prices, which could impact earnings recovery. In light of these challenges, he emphasizes the importance of bottom-up investing as a key criterion for outperformance in 2024.
In conclusion, Bhattacharya affirms that Indian equities will continue to be a favored destination for investors in 2024. The market’s positive fundamentals, coupled with strategic insights and a cautious approach, position investors to navigate the evolving landscape and capitalize on emerging opportunities.