“Given the current high valuations in the Indian equity market, there are expectations of subdued returns in the second half of 2024, with increased volatility and only marginal gains likely by the end of the year,” says Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.
In an interview with ETMarkets, Bhowar said: “India’s economy is expected to experience strong growth in the second half of 2024. This growth will be fuelled by robust public investment and resilient private consumption, supported by strong domestic factors, decreasing inflation, and favourable fiscal and monetary policies,” Edited excerpts:June has been a volatile month for the Indian market, but bulls managed to keep the momentum going and pushed benchmark indices to fresh record highs. What is fuelling optimism?
A) The government’s commitment to continuing reforms after the election results has bolstered the forecast for the GDP growth and attracted increased foreign portfolio investment (FPI) purchases.
Also, positive global cues, favourable economic indicators, proactive government policies, and ample domestic and foreign liquidity present an opportunity for broader market participation and have collectively propelled the recent surge in the Indian benchmark indices to reach new historic highs.
However, the focus of FPI buying is on specific stocks/sectors instead of being widely distributed across the market or sectors.
We have also completed 6 months of the year 2024 – how is H22024 looking? What are the important trigger points that investors should take note of?
India’s economy is expected to experience strong growth in the second half of 2024. This growth will be fuelled by robust public investment and resilient private consumption, supported by strong domestic factors, decreasing inflation, and favourable fiscal and monetary policies.
Despite some external challenges, India’s economy seems well-prepared for substantial growth in the latter part of 2024.
Potential challenges for investors to monitor include:
– Slow growth in farm output due to unpredictable monsoons
– Weak external demand affecting merchandise exports
– Potential risks arising from geopolitical tensions and spikes in energy prices
To achieve the government’s ambitious long-term growth targets, it’s crucial to address structural issues such as boosting private investment and creating more jobs.
How are earnings likely to pan out in the next 6 months? A recent trend suggests that prices have run up ahead of earnings upgrades.
The Indian stock market has historically shown better performance in the second half of the year compared to the first half. However, this pattern shifts during the general election years, as seen in 2014 and 2019.
Given the current high valuations in the Indian equity market, there are expectations of subdued returns in the second half of 2024, with increased volatility and only marginal gains likely by the end of the year.
The earnings outlook for Indian companies in the next 6 months is cautiously optimistic, with consensus expecting reasonable growth supported by capex, positive global factors, and the resilience of the domestic economy.
What are your expectations from the Final Budget 2024?
The budget must balance fiscal consolidation, growth-oriented measures and welfare schemes. Targeted tax relief, higher allocations for healthcare and education, and continued focus on infrastructure and empowerment of women and youth should propel India towards becoming a $5 trillion economy and a developed nation by 2047, as envisioned under the ‘Viksit Bharat’.
How are FIIs looking at Indian markets?
FIIs are avoiding broad-based buying across the market and are being selective in their investments.
The sustainability of FII inflows will depend on the upcoming budget, Q1 earnings, and global factors such as US bond yields.
But it is fair to assume that FII would remain optimistic about India’s long-term appeal, given its strong economic fundamentals and growth potential.
What about small & midcaps? Are there still stocks available at attractive valuations considering the run up we have seen in this space or does the valuation methodology have to shift now?
While the initial opportunities for easy gains in small and mid-cap stocks may have passed, there are still potential avenues for generating attractive returns in these segments.
However, capitalizing on these opportunities requires a more discerning approach centered on quality, growth, and valuation.
It’s important to acknowledge the likelihood of higher volatility in small and mid-cap stocks compared to large-caps.
Therefore, adopting strategies such as diversification, risk management, and maintaining a long-term investment perspective are vital for the successful navigation of this space.
In the context of investing in small and mid-cap stocks in India, it is important to adjust the valuation methodology towards a more well-rounded and diversified approach.
Emphasizing the management of risks associated with the current elevated valuations in these segments is crucial.
What are the themes that will be in focus in the next 6 months?
Undervalued private sector banks and NBFCs, auto sector due to the improved demand outlook. Additionally, investments in select capital goods stocks that are expected to benefit from government infrastructure initiatives. Real estate and consumer-oriented stocks too are poised to benefit from economic recovery.
SEBI on quant MF did shake up confidence among the MF investor community. Do you see more tightening measures coming from the regulator?
A few years ago, we encountered a similar issue with another Asset Management Company (AMC), which led to a reduction in assets under management (AUM) and a change in management for the AMC.
While it’s important to wait for more clarity on the situation with Quant Mutual Fund, the current crackdown is expected to decrease investor confidence.
However, these events are likely to lead to stricter regulations, increased scrutiny of fund managers, and a stronger emphasis on transparency. The ultimate goal of SEBI would be to rebuild trust in the mutual fund industry.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
