Ridham Desai lists 6 most important things to watch out for in the new year

Ridham Desai, managing director, Morgan Stanley

The 2024 Lok Sabha elections are the most critical factor that could drive markets in the coming 12 months, Ridham Desai, managing director, Morgan Staley, has said.

In an exclusive interview to Moneycontrol, Desai said interest rates in India were unlikely to be cut before the US Federal Reserve swings into action. If the US economy sees a soft landing, it would be a unique occurrence that augurs “very well” for India.

Here are the six factors, which, Desai said, would be vital to watch out for in the coming 12 months. Catch the full interview live on November 28 at 11 am.

1 General elections: Desai said market volatility was set to rise as the coming year would see several “binary events”, the most critical of them being the general elections in April-May 2024. “My base case is that the market will trade a continuity in government and then decide what to do about the actual result after that,” he said.

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2 Oil prices: The second significant factor would be the oil prices for a country that meets more than 80 percent of its fuel needs through imports. “The oil prices above $110-120 could hurt. Until then, I think, we're okay,” he said.

3 Rate cut by Fed: The third factor that will determine the course of the market will be the Fed. “We need to watch the Fed because if the Fed decides that it's time to cut rates and our US economists believe that's a June event next year, I think it'll set the stage for the RBI to get less hawkish. Until then, I think the RBI's tendency will not to be pre-empting the Fed. Again, it will be inflation data-dependent and therefore inflation dynamic also plays a role here,” Desai said.

4 Earnings growth: The earnings story for India should be “quite okay”. “There will not be a headwind or a tailwind. It will be a slight tailwind for the market but not a headwind," he added.

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5 US growth cycle: Desai said it was important to keep a watch on the US growth cycle. “Our base case is that the US will soft land. That's not something that's happened often in the last 100 years. So it's quite a unique outcome. If the US does soft land, I think it sets us up quite well and India will do very well in that situation,” Desai said.

6 China revival: If Chinese growth comes back, it would have its pushes and pulls on commodity prices, said Desai. “There are a lot of moving parts to China's outcome in the short run and, China is pressing policy hard to revive its economy. So we have to see how successful it gets there.”