Throwback 2024: What moved the markets the most in the year gone by

Stock Markets

Now that 2024 is coming to an end, let's take a look back at the year’s biggest market movers: from policy shifts to global events that shaped investor sentiment.

SEBI cracks the whip

Markets regulator Securities and Exchange Board of India (SEBI) cracked the whip quite hard in 2024, taking decisive action against not only individuals and organisations, but also came out with decisions that impacted the entire securities ecosystem in India.

Of the two big moves SEBI undertook in 2024, the first was the stress test requirement. Mutual funds were asked to close the liquidity of a fund, so investors could assess how liquid their capital parked in these funds is. The sharp run-up in small-cap stocks caused huge mark-to-market gains, but due to the lower trading volumes, the markets regulator expressed concerns about the liquidity, in case a slew of investors decided to redeem their portfolios.

The second, and arguably more impactful, move was the overhaul of the futures and options (F&O) sector. Retail investors that turned towards derivatives to make a quick buck were mostly making losses – a SEBI study pegged this share at over 90% - causing the regulator to revamp the regulations in the F&O space.

A portion of rules came into effect on November 20, 2024, which included increased lot sizes, the reduction in the number of weekly expiries, and a bump up in contract sizes. The attempt was to rein in volatility, especially on expiry days, and also cut down retail losses.

Elections: NDA shocks, Trump returns

Over 64 countries across the globe went to polls in 2024, marking it as the largest election year in recorded history. However, the domestic markets looked towards three key elections for cues: the Lok Sabha election in June, the US Presidential election in November, and the Maharashtra state elections held following Diwali.

The Lok Sabha election results came as a shock to the markets, which had largely priced in a complete majority for the BJP-led National Democratic Alliance, with expectations of the coalition cinching over 400 seats in the party. The picture on the cards was more somber, with the BJP failing to secure a majority in the parliament.

As a result, the benchmark indices took a tumble – post a huge single-day gain basis the exit polls - crashing over six percent each, while the small- and mid-cap indices crashed over eight percent.

Thereafter, the focus in the domestic landscape shifted towards the Maharashtra Assembly elections to see if the BJP-led Maha Yuti alliance could retain its stronghold. The state was especially important, since Maharashtra is the largest state in terms of GDP contribution as well as FDI inflows.

With BJP’s roaring comeback in the elections, bagging 132 seats in the 288-member Assembly, investors across the world were assuaged by the results that showed that the incumbent could hold onto power.

The elections in the US also played a key role in moving the Indian markets. The frontline indices Nifty 50 and Sensex closed over a percent higher each following ex-President Donald Trump’s win, with the information technology and pharma sectors seeing the most gains. The export-oriented sectoral indices have gone on to rally further, as the local currency weakens against a strengthening US Dollar.

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Budget: Playing fast and loose with taxes

The election results took the nation by surprise. Some might go even so far as to say, the election results took the incumbent party by surprise. Many experts suggested that a series of measures announced in the Union Budget 2024-2025 were completely populist in nature – focusing on rural empowerment, employment, and skilling – just to assuage future voters.

Further, the Budget made large allocations towards Andhra Pradesh and Bihar, two states that were critical in ensuring that the BJP-led NDA clinched a majority in the Lok Sabha polls.

These were also largely priced in though. What the markets did not expect was the tax curveball the Ministry of Finance threw. From the Union Budget presented in the year ago on February 1, 2023, to the Budget presented on July 23, 2024, the benchmark indices saw a whopping 40 percent rally. As a result, FinMin decided to take a larger piece of the pie, hiking the STT rate on derivatives and increasing the LTCG to 12.5 percent and STCG to 20 percent

What themes moved the market?

Public sector undertakings (PSUs), railway, and defence stocks surged multifold, with some stocks quadrupling investors’ wealth. The multi-bagger returns led to the rush of investors hoping to ride the train to the top, with hopes of a strong election result for the incumbent, which would result in a continuation of growth-oriented policies.

To this extent, Hong Kong-based brokerage CLSA curated a list of 54 stocks, most of which were from capex and infrastructure-linked sectors, PSUs or stocks of some corporate houses. The brokerage had named these “Modi stocks,” since they were rallying based on prospects of the BJP coming back to power.

However, with the dismal election results, nervousness took over the market sentiment, leading to sharp u-turn. Investors rushed to offload their overvalued holdings in these stocks and sectors, instead moving to the defensive themes of pharma and IT.

The elections caused the Nifty IT to snap its losing streak, instead causing it to stage a turnaround, surging over 32 percent from June 4, 2024. Similarly, the Nifty Pharma index jumped around 20 percent during the same time. However, over the past six months, the Nifty CPSE index has taken an 11 percent tumble on the bourses.

FIIs: What are they up to?

Foreign investors were among the top market movers in 2024, with the markets closely tracking FPI inflows and outflows though robust domestic inflows provided the much-needed support during times of intense selling by the foreign investors.

The bulk of the FII selling was seen in October and November, following the stimulus measures announced in China, as foreign funds pulled out their Indian holdings to invest in cheaper Chinese equities. However, the investors returned to the domestic markets in December.

Buying in seven of the 12 months, FPIs have infused Rs 1,656 crore into the Indian markets so far in 2024, extending the buying spree seen in 2023, when they bought Rs 1.7 lakh crore.

Retail investors

The benchmark indices clocked record highs in the first half of the year, closing on 1,000-mark milestones with increased frequency. From the 22,000 mark to scaling Mount 26k, the Nifty 50 quickly took out every marker in rapid succession until September.

The surge in the benchmarks and broader markets have come as retail investors step up their investments into the equity markets, with more and more money being diverted into mutual funds or directly into equities. This represents a tangible shift in the retail attitude towards the markets, with rising financial literacy and promises of higher returns, the financialisation of savings is clearly underway.

The monthly SIP inflows continued to hit record highs. As of November 2024, the equity fund AUM was Rs 30.36 lakh crore, compared to Rs 20.33 lakh crore in November 2023, a nearly 40 percent increase.

Further, as of September 30, Indian households have nearly doubled their equity exposure to 30.6 percent from around 17.2 percent in FY16, with direct equities rising to around 14.6 percent from 8.5 percent.

Further, retail investors are more exposed to mid-cap and small-caps compared to FIIs and mutual funds. Foreign investors have kept their exposure to large-caps around the 80 percent mark over FY19-FY24, despite the strong outperformance of SMIDs during this period, noted domestic brokerage Emkay Global.

Consumption: Urban feels the pinch, rural sees green shoots

The consumption story has kept investors in limbo from 2020 onwards. After the pandemic, all eyes were on the rural sector, which remained stressed for a few years.

Even in the first half of the calendar year, ahead of the monsoons, the rural sector saw pressure, with most high frequency indicators pointing to signs of an upcoming revival. There was an uptick in non-essential spending, and many consumption companies reported increased demand.

The heavier-than-usual monsoon came in and swept away all previous expectations. The picture emerging on the cards in the September quarter was startlingly different: instead of a rural uptick, urban consumption was inching closer to a standstill.

Various domestic growth indicators saw signs of easing over the past few months. Consumption from metros, tier-1, or tier-2 cities has lagged on an aggregate level. Heavy food inflation and the central bank's crackdown on unsecured lending have been pointed towards as the key factors leading to the slowdown.

Maybe a possible rate cut in 2025 could lead to an uptick in urban consumption as the cost of borrowing eases, but until then, analysts expect the pain to continue.

This has clearly played out on the bourses, with FMCG blue chips such as Hindustan Unilever Ltd (HUL) and ITC Ltd giving investors flat-to-negative returns for the year.

RBI aggression

The Reserve Bank of India also hogged the limelight in 2024, with serious crackdowns seen on microfinance institutions, Kotak Mahindra Bank, gold financiers, IIFL Securities, and Paytm Payments Bank.

MFIs: The RBI came down on four microfinance institutions, asking the lenders to cease and desist sanction and disbursal of loans. The four firms flagged were Asirvad Micro Finance Ltd, Arohan Financial Services Ltd, DMI Finance, and Navi Finserv. The central bank raised issues with the pricing policy of the firms, which were found to be excessive and not in adherence with the regulations.

Gold Financiers: RBI sent Manappuram Finance and Muthoot Finance, an advisory letter limiting cash disbursal of loans. The central bank has reportedly asked both NBFCs to strictly adhere to the Income Tax Act (IT) provision on cash disbursement, and said that no NBFC should disburse loan amount in excess of Rs 20,000 in cash.

Paytm Payments Bank: On January 31, RBI directed the digital lender to stop accepting deposits or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, and NCMC cards after February 29. This is excluding cashbacks, or refunds.

IIFL Finance: On March 4, the central bank imposed curbs on IIFL Finance, asking it to stop disbursing new gold-backed lending following “material supervisory concerns”. However, the bank lifted its restrictions on September 19, allowing the gold loan arm to resume business.

Kotak Mahindra Bank: The private sector lender was barred from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards as the RBI found deficiencies in the areas of IT inventory management.

Adani Group, Hindenburg Research and SEBI

After a tumultuous 2023, hopes prevailed that 2024 might be a less eventful year for the Gautam Adani-led Adani group. However, with activist short-seller Hindenburg Research coming back for a second innings earlier in August this year, the ports-to-power conglomerate saw much turbulence on the bourses.

Levelling accusations at the SEBI chairperson Madhabi Puri Buch, Hindenburg alleged that the securities regulator might not have conducted a proper investigation into the alleged impropriety at Adani Enterprises and related group firms due to conflict of interest. According to the report, Buch and her husband Dhaval Buch owned a stake in the same offshore entities that were linked to the Adani group.

Further, Hindenburg Research also suggested that the ongoing thrust on real estate investment trusts or REITs was directly beneficial to Blackstone Private Equity, a significant player in the real estate sector, where Dhaval Buch is Senior Advisor.

Market regulator SEBI, and Madhabi Puri Buch and her husband Dhaval Buch have denied the allegations, releasing detailed rebuttals to the claims made in the Hindenburg report. SEBI has also confirmed that the chairperson had made proper disclosures at all times.

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IPOs: Highest ever issuances

As of December 23, 2024, Indian companies raised a whopping Rs 1.6 lakh crore with an impressive 31 percent weighted average listing premium. The Consumer, Auto and IT sectors led to more than 50 percent of IPO issue amount. The SMIDs IPOs stole the spotlight, accounting for 89 percent of all deals, fuelled by the broader market’s stellar rally.

The SME segment, which saw 109 issues in 2022, surged to 235, with the amount raised jumping from Rs 1,900 crore to over Rs 8,600 crore this year.

“The strong bull market has given Indian firms unprecedented access to capital, often at higher equity valuations. In CY24, many companies seized the opportunity to deleverage their balance sheets by capitalizing on their equity,” stated a report by Nuvama Institutional Equities.

Large-caps underperform

The large-cap indices underperformed the broader markets. For the year, the Nifty 50 has given 9.5 percent returns, a moderate rise compared to 19.42 percent seen in 2023.

Asian Paints, Reliance Industries, Nestle India, IndusInd Bank, Tata Consumer Products, HUL, Titan Company, Adani Enterprises, Kotak Mahindra Bank, Bajaj Finance, Tata Motors, HDFC Life Insurance, SBI Life Insurance, Axis Bank, Hindalco Industries and Tata Steel are the 17 of 50 Nifty 50 firms that gave investors negative returns.

However, the Nifty Smallcap 100 has risen 23.3 percent, while the Nifty Midcap 100 has jumped 23.4 percent during the same period.

US Federal Reserve

The US Federal Reserve kicked off its monetary policy easing cycle in September, slashing the interest rate thrice in 2024. In September, the Federal Reserve cut rates by 50 basis points, following it up with a 25 basis points cut in the November and December meetings.

In his election campaign, President-elect Donald Trump shared that he would implement tax breaks, which could pose a downside risk to inflation, sending it surging as more money enters the system. Further, he threatened to impose tariffs on goods imported, which could send prices skyrocketing. These moves would be in divergence from the Federal Reserve's goal to bring inflation closer to the two percent mark.

In September, the Fed's projections indicated four rate cuts in 2025. With inflation proving more persistent and the threat of Donald Trump’s tariffs, the American central bank shared a more hawkish outlook for the rate cut prospects for 2024 in December, suggesting only two cuts might be undertaken next year.

The Indian markets, and the global markets, reacted sharply to this update, crashing over one percent each following the news. However, the IT and pharma indices rejoiced, as a strengthening US dollar means a weaker rupee, leading to higher top line growth for these firms.

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