Daily Voice | Three factors drive this investment professional to look for 15% return from markets next year

Akhil Bhardwaj is the Senior Partner at Alpha Capital

This is an early cycle for bull run and there could be a big rally shaping up, backed by likely cut in US fed funds rate, growth in corporate earnings, and structural flow of domestic money into the Nifty, says Akhil Bhardwaj, senior partner at Alpha Capital, in an interview to Moneycontrol.

With all these reasonable expectations, 2024 will definitely deliver 15 percent or higher returns, he believes.

The wealth management professional, seasoned for over 14 years in private wealth management space, says good themes to bet in 2024 would be the largecap category as, from the valuation point of view, largecaps are fairly valued. "The other good themes to participate is technology and IT."

Excerpts from the interview:

Do you think the FY24 economic growth will be better than the RBI's revised forecast of 7 percent?

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Akhil Bhardwaj

Senior Partner|Alpha Capital

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The first quarter and second quarter GDP growth was 7.8 percent and 7.6 percent. Therefore, growth rate for the first half of the year is 7.7 percent. I expect the similar or higher growth in the coming quarter on the back of strong momentum, positive sentiments about India for corporate expansion boosting the private investment.

However, there are two major concerns which prevail from outside that may impact the growth. First is geopolitical crisis which disturbs the world peace and decorum i.e. wars between Israel and Hamas immediately after Russia and Ukraine. Hope this fire does not spread to other nations and subsides. Second is a delay in reduction of interest rate in western countries which indirectly affects the Indian economy.

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We are sure the Indian government is taking measured steps to remain resilient or minimum from global turbulence.

FII holding in Indian equity markets is at a decadal low. Do you think it will look up after the general elections next year?

FII holding in the Indian stock market has dropped to 16-17 percent, which is the lowest since 2012. This is despite of strong fundamentals of the Indian economy when the country is the fastest growing emerging market and is a sweet spot for FIIs to invest. The big reason to the same is high interest rate in western countries, especially in the US. It is attracting money from emerging countries to the level that FIIs have not seen for last four decades.

The traction of funds from emerging countries is towards the bond market in the US earning yield of around 4-5 percent. High risk-free return of US Treasury bonds had led to huge exodus of FII money from the Indian stock market. There is high expectation for the tide to reverse when the reversal of interest rate start happening.

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With moderation in inflation, the interest rate would start coming down, which would make loose the sheen of the bond market. Once that happens, we will see FII money flowing back into the Indian stock market. On top of it, there is high probability for the BJP to continue to rule the country. This will bring stability in long-term policies, which will bring huge comfort for FII investors to bet on India.

Do you expect the government to focus more on ethanol from multi-feedstock instead of only sugar?

The Union government has directed sugar mills to not produce ethanol from sugar syrup and continue with the bulk manufacturing of sugar. This high supply of sugar will keep the sugar prices in control. The ethanol supply to oil marketing companies (OMC) would be provided from elsewhere i.e. other feedback stock like maize.

In fact, the production of ethanol production isn’t afar. The government is completely committed to the  Ethanol Blending Programme (EBP) and also gradually increasing the blending allocation. For the same, NAFED and NCCF will procure maize at the MSP (minimum support price) and will supply to grain distilleries.

If farmers are assured to get the MSP, it will boost them to cultivate more maize, which takes three months of mature, while sugarcane takes 12 months.

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How do you summarise the year passing by for the equity markets (2023)?

The year 2023 has been fantastic for equity investors. The investor who has spread money between large, mid and small cap stocks has made satisfactory return due to run up into mid and small cap category. The BSE LargeCap has given an average return of 14 percent till date but the MidCap and SmallCap categories have delivered 39 percent and 42 percent.

Category diversified investor has made fabulous return because mid/small cap category has average up the overall return. For example, an investor who are 50 percent in large and rest in mid/small cap has touched around 25 percent-30 percent average return depending upon fund or stock. This is despite other major and emerging countries has not performed due liquidity tightening across the globe. The major participation in 2023 is from DIIs.

Further, how will be the year 2024 for equity markets? Do you expect a 15 percent return by Nifty in the coming year?

The year 2023 was full of worries of wars, US yield inching up, FPI selling Indian equities, and high oil prices. Despite these, the market has given awesome returns. Now these worries are behind us and there is high expectation that interest rate would start falling after inflation has moderated.

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So, to my sense, we are in an early cycle for bull run and we might see big rally soon. These are majorly due to factors such as:

1 – The US Fed is expected to cut the interest rate. Thereafter the FII inflow will start happening of huge amount.
2 – Corporate earnings of NSE 500 (top 500 companies) has grown by 16 percent. Strong earning will keep growing the market.
3 – Structural flow of SIP, NPS, EPF allocation in Nifty will keep happening.

With all these reasonable expectation, year 2024 will definitely deliver 15 percent or higher return.

Will the 1 lakh mark be possible on the Sensex by 2025?

The 1 lakh level till end of 2025 is a close match. If not till 1 lakh, I expect it to be in range of 90,000 to 1 lakh.

Do you expect any surprise from the Federal Reserve this week as it is the last meeting of the current calendar year?

The FOMC interest rate decision will be announced on December 13. The whole world is waiting for the decision of Fed Chairman Jerome Powell. There is high expectation that the Federal Reserve will keep the interest rate status quo i.e. 5.25 percent-5.5 percent. This would be third consecutive meeting where the Fed will opt to keep the interest rate steady.

Also read: India planning to move from WPI to PPI in future: Official

Although there are some signs of positive recovery like unemployment rate in USA has dropped. Despite these, experts anticipate that Fed will take cautious step and keep the interest rate unchanged.

Your top themes to bet on for 2024?

Good themes to bet in 2024 would be large cap category which has not given as good return compared to Mid/small cap category. The large cap category is yet to catch up as it has only grown in the line with its earnings. Therefore from the valuation point of view large caps are fairly valued.

The other good themes to participate is Technology & IT. The Indian IT sector is yet to catch up which is grappled with global slowdown.

The third good sector to bet on is banking which has only grown by 9 percent till date in this calendar year despite good earning growth of banking sector.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.