India has the potential to be the fastest growing major economy in the Amrit Kaal, believes Ashwini Shami, the executive vice-president (EVP) and portfolio manager at OmniScience Capital.
With more than 50 percent of the population below the average age of 25, India has one of the youngest populations in the world. This, aided by policy reforms, technology leverage and right capital allocation is helping India to have a strong economic outlook for years, he says in an interview to Moneycontrol.
On the sectors, the fund manager with over two decades of experience in the financial services industry, expects the financials and technology sectors have the highest weight in the large-cap index to drive returns for the market in 2024. Excerpts from the interview:
Do you think corporate earnings are more important than the economic outlook for markets in 2024?
In the long run, the earnings drive markets and the economic outlook drive corporate earnings. So, these are interlinked when it comes to markets. In the near term, the corporate earnings growth and the economic outlook both remain bullish.
India is likely to be the favourite emerging markets in the next two decades with a potential to be the fastest growing major economy in the Amrit Kaal. With more than 50 percent of the population below the age of 25, India has one of the youngest populations in the world. This, aided by policy reforms, technology leverage and right capital allocation is helping India to have a strong economic outlook for years.
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Is it the right time to have quality IT stocks (across caps) in a portfolio especially after the Fed shifted focus to rate cuts?
The Federal Reserve changing stance on interest rates with an announcement of three rate cuts in 2024 has shifted the narrative away from a US recession which is a positive for IT stocks.
US firms are expected to go aggressive on their IT spends to undertake digital transformation initiatives. IT stocks with double-digit growth potential are currently available at attractive valuations with high earning yields so there is a reasonable expectation of rerating especially in the larger cap space.
Do you expect a 20 percent return from the equity markets next year? Which are the sectors at the driving seat for the market next year?
While we strongly advocate investors to allocate capital in equity markets for at least three to five years, the outlook for the next year is significantly positive. The year 2024 being an election year, has uncertainties around the outcome of the event. However, strong GDP growth, US interest rate cuts and significant capital allocation by private and public sectors as seen from the double-digit growth in gross fixed capital formation place a strong foundation for equity market returns for 2024.
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One can expect high-double digit earnings growth and low discount rates driven by rate cuts in the next year to drive markets higher, and this with strong FII net inflows in the range of 40 to 50 billion dollars will provide additional support to Indian equities.
We expect the financials and technology sector, having the highest weight in the largecap index to drive returns for the market in 2024.
Sectors that provide great opportunities for 2024...
We are positive on sectors such as power, banking and financial services, technology with a focus on digital transformation and AI, and railway infrastructure. The banking sector has significantly stronger balance sheets and the credit growth is strong which is further improving the earnings outlook for the sector.
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The growth for the IT sector is also expected to be strong with high US GDP growth and further rate cuts. We also have a constructive view on cleantech with a focus on EV (electric vehicle) and green hydrogen where fresh investments and replacement cycles will offer long-term growth opportunities to these segments.
Do you expect a significant jump in demat accounts in coming years?
We expect that with Increasing penetration and continued financialization of investments, the growth in demat accounts will remain strong. Enhanced IPO activities and robust market performance will also attract new market participants. The ease of digital onboarding and innovative investment solutions such as direct indexing which enable investors to invest in interesting growth ideas is further boosting growth in demat accounts.
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Will the large-caps close the gap with the small-caps and mid-caps in 2024?
Yes, we anticipate that large-caps may perform better, driven mainly by the banking, financial services and technology sectors. automotive and energy stocks focusing on EV and clean tech will also support large-cap momentum.
The FII net inflows are expected to remain strong in the coming year where the default allocation is first larger caps followed by mid and small-caps.
Do you expect more divestment by the government post general elections?
With mispricing getting resolved in the public sector enterprises and they getting a fair market valuation, we expect significantly more divestments from the government. One can expect a series of fresh listings of PSUs from sectors such as defence, railways and infrastructure. There may also be a number of follow on offers from the existing PSU pack.
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.
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