Daily Voice: Investment strategist lists four factors likely to drive markets in next financial year

We anticipate mixed results for some sectors in the full-year earnings. However, we expect a strongly bullish outlook for the future in management commentaries across most sectors. Many managements will likely announce significant capital expenditure plans over the next 2-3 years, ranging from 50 percent to 100 percent of existing fixed assets. This optimism stems from the recognition of a new economic cycle, supported by interest rate cuts, poised to create a major economic boom.

Government policies encouraging investments, especially from the public and private sectors, initiatives like PLI (production-linked incentive) schemes, and efforts to diversify global supply chains away from China, are expected to attract substantial foreign direct investment (FDI).

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Additionally, foreign institutional investors, such as pension funds and sovereign wealth funds, are showing interest in long-term infrastructure projects in India, further bolstering the positive sentiment.

Do you foresee a major correction in the market in FY25 before a rally towards the 25,000 mark on the Nifty?

While corrections are always possible during a bull run, predicting their timing and extent is challenging. Waiting for a correction may not be prudent, as the market's movement is unpredictable. A more reliable approach is to follow a scientific investing method, buying when assets are below their intrinsic value to capture alpha whenever it's available, rather than trying to time the market.

What factors will drive the equity markets in the next financial year, and what are the potential risk factors that could limit market upside?

Key drivers for the equity markets in the next financial year include expected interest rate cuts by the Federal Reserve and the RBI, along with factors like Indian elections and US elections.

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The markets will also be driven by growth in capital expenditure, revenues, and earnings, especially due to the twin balance sheet opportunity. Risks such as an inflation surprise in the US or an election surprise in India could limit the market's upside, though these scenarios appear unlikely currently.

What is your take on the Federal Reserve's announcement of a dovish policy, indicating three rate cuts this year despite inflation above its long-term target, without specifying a timeline?

The Federal Reserve's cautious approach is likely due to several factors, including inflation trends and global economic uncertainties. Inflation, excluding housing, is already below the 2 percent target, but the FOMC is concerned about upward trends in SME salaries affecting headline inflation.

The Fed wants flexibility to adjust its policies based on various scenarios, even though it sees a higher probability of inflation reaching the 2 percent target by the end of 2024.

Do you expect DIIs' flow to outpace FIIs' flow in the coming years? If so, what is your outlook for the wealth industry?

Both DII and FII flows are expected to increase significantly, with the potential for FII flows to be substantial, similar to historical flows to China. The Indian wealth industry is at an inflection point and is expected to grow significantly in the next decade, reflecting the overall growth and maturity of the wealth management sector.

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