Daily Voice | US & Lok Sabha elections, easing monetary policy among 5 factors to watch next year

Anup Maheshwari is the Co-Founder & CIO at 360 ONE Asset

"The outlook for the equity markets in 2024 appears to be one of consolidation. The market has exhibited strong performance in 2023, in line with earnings growth," Anup Maheshwari, Co-Founder & CIO at 360 ONE Asset said in an interview with Moneycontrol.

Regarding the upcoming year, he emphasizes that the key areas of attention will be the Lok Sabha elections. Additionally, markets will closely monitor the interim budget in February 2024 for potential announcements related to welfare schemes aimed at bolstering sluggish consumption.

"Third, the upcoming US election next year is also important. And fourth, the focus shifts to when central banks will start easing monetary policy," says Maheshwari, who has over 24 years of experience in the financial services sector.

While it's difficult to predict market movements with certainty, the outlook for the equity markets in 2024 appears to be one of consolidation. The market has exhibited strong performance in 2023, in line with earnings growth. We will assess whether there is scope for further margin improvement that could sustain the earning growth in 2024 as well.

The anticipation of lower interest rates in 2024 could potentially be favourable for equity markets, but multiple factors are at play, and a one-year timeframe might be too narrow to gauge equity market performance. Taking a longer-term perspective, over a five-year horizon, the outlook becomes more positive.

Various structural factors, such as robust growth momentum, an aspirational middle class, favourable demographics, and urbanization, make Indian equity markets a very attractive proposition.

Also read: IT, pharma likely to be biggest beneficiaries of FII inflows. Here's why

The primary focus next year will be on the Lok Sabha elections. There is generally heightened economic uncertainty around the elections. This uncertainty stems from concerns regarding policy continuity, which could introduce volatility into the market.

Second, markets will also closely watch the interim budget in February 2024 for any announcements around welfare schemes that may boost lagging consumption.

Third, the upcoming US election next year is also important. The US has pursued an active industrial policy over the last few years, and we think that is likely to continue irrespective of which government comes to power. However, the elections are important from a geopolitical perspective.

Fourth, interest rate cycles across the developed markets have peaked. Now, the focus shifts to when central banks will start easing monetary policy. We think the extent of monetary policy easing will be a driving factor for currency, equity, and debt markets.

Also read: Foreign investors' positions on India light, may buy on corrections: Jefferies

And lastly, we would keep an eye on the oil market and OPEC+ supply decisions, given the significant impact of oil prices on India's macros.

We find value in both agri and building materials, especially when considering a medium to long-term perspective. Agri is facing some short-term growth challenges. The growth of the agri sector was subdued at just 1.2 percent YoY in Q2, primarily due to poor kharif production. However, companies within the sector could still be promising opportunities in the long run. Investing in a good business during challenging times can be a sound strategy because you acquire it at attractive valuations, and a resilient business continues to perform well in the long term.

The building materials sector is expected to experience decent growth, thanks to a steady recovery in the real estate market. The interest rate cycle appears to have peaked, and the government is incentivizing affordable housing through interest subvention schemes, which bodes well for housing demand and the consumption of related products. Additionally, there are promising opportunities in the export market for this sector. The government's focus on urban and rural infrastructure development further supports the sector.

Also read: Stocks with ‘hockey-stick returns’: SRF, Tata Elxsi among top names in 10 years, says Motilal Oswal

We are closely examining the financial and industrial sectors. The financial sector is performing remarkably well, with banks reporting near-high profits on the back of healthy credit growth and lower provisions. High capacity utilization, robust growth momentum, and healthy corporate balance sheets will support the demand for credit going forward. Strong banks' balance sheets, with adequate capital and low-stress levels, also bode well for the sector.

In industrials, we continue to witness a strong order flow every quarter. We expect award momentum and executing pace to remain healthy. The central government remains focused on enhancing capital expenditure, state ordering also remains robust, and private capex is beginning to pick up.

Apart from these two sectors, we can consider some contrarian plays in consumer discretionary and information technology. We have a bottom-up investment approach and will be happy to look at opportunities in these sectors if available at the right valuations.

Also read: Budget 2024: Top 10 highlights from the last interim budget presented by Piyush Goyal

The monetary policy will continue to be actively disinflationary. Despite core inflation steadily easing, food inflation remains volatile and broad-based.

We believe the RBI will likely maintain a prolonged pause until there is visibility of inflation aligning with the 4 percent target on a durable basis. Additionally, the RBI is expected to keep liquidity conditions close to neutral due to financial stability and inflationary risks associated with excess liquidity.

The overall outlook for the technology sector appears optimistic in the long term. Despite the underperformance of large-cap tech stocks thus far, there is potential for recovery, especially as significant deal wins begin to reflect in revenue growth. The sector could also benefit from an improvement in global growth prospects following the conclusion of monetary tightening by major central banks.