From return of FIIs to sustainable growth: 7 themes to ride on in 2024

Buzzing Stocks

The exuberance in the domestic markets is likely to continue in 2024, feel analysts, given the heady cocktail of positive factors — the return of FIIs, rate cuts, political stability, weak dollar and the Indian economy’s strength relative to peers.

From the various narratives surrounding the election-driven markets to strategies around infrastructure and digital transformation, here are experts’ seven key themes to watch out for in 2024.

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Elections

One of the key triggers across the world are the simultaneous elections. The US, EU, and Taiwan will hold key elections, with India’s general elections slated for the summer of 2024. “The elections in India and the US elections are likely to result in higher volatility,” Naveen Kulkarni, chief investment officer of Axis Securities, said. This will mean reduced market breadth and focus shifting to liquidity within the portfolio.

“Statistics paint a compelling picture — one year before elections, domestic markets give a staggering 29.1 percent average return; one month before, a solid 6 percent,” added Nikunj Saraf, vice-president of Choice Wealth.

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While the general elections in India may contribute to volatility, experts also believe that the markets have priced in the victory of the reigning party. Following the recent state elections, wherein the BJP swept the polls, the market’s confidence was boosted. “It augurs well for India’s macro and policy momentum. Expect the market to get into pre-election rally mode,” said Motilal Oswal Financial Services.

Indian Economy

India’s GDP growth of 7.6 percent in Q2FY24 has exceeded expectations, and all factors point to the momentum sustaining in the foreseeable future.

“This is a result of easing inflation pressures and interest rates on the decline supported by a robust growth in the GDP,” said Sampath Reddy, chief investment officer of Bajaj Allianz Life.

“A notable observation from the GDP data is the rise in gross capital formation, which indicates a recovery in the capital expenditure (capex) cycle," said Omkar Kamtekar, research analyst at Bonanza Portfolio.

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Infrastructure

As India is on a transformative journey, infrastructure ties into the election theme pretty strongly as a result of the government’s ongoing capex thrust. The market is factoring in the likelihood of the Bharatiya Janata Party (BJP) retaining power. In Budget 2023-24, the Centre hiked the capital expenditure by 33 percent to Rs 10 lakh crore.

“A key focus of the BJP government has been the development of infrastructure, with the government's overall allocation for capital expenditure having nearly tripled since FY19,” said Kamtekar. He added that capital goods manufacturing, and manufacturing firms are expected to outperform in 2024.

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Since the incumbent government is expected to retain power, the trend is likely to continue, with infrastructure companies and allied sectors witnessing substantial order inflows ranging across highways, railways, ports, and airports. 50 percent of the total allocated capex earmarked for railways and roads, which hold the key to making India a manufacturing hub.

Digital Transformation

As India embarks on a digital revolution, the Covid-19 pandemic enabled a technology-forward transformation across industries. “Companies that are able to leverage technology to harness India’s growth engine to the utmost, are the ones that would emerge as the leaders of tomorrow, said Aamar Deo Singh, senior vice-president of Angel One.

Additionally, while companies that use technology are set to be outperformers in the year ahead, the IT sector itself will continue on its upward trajectory. “Technical analysis nods approvingly, suggesting a prosperous journey for IT companies in 2024. Betting on these firms is a prudent move in the evolving digital landscape,” Saraf said.

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Healthcare

As Covid-19 cases see a resurgence as a result of the new variant, Omkar Kamtekar is bullish on the healthcare theme. During the first wave of the pandemic, hospitals and diagnostic players saw significant volumes. But also as personal income levels rise, there is a greater likelihood of incremental spending on early disease detection and prevention. The government has also increased its allocation for the development of healthcare infrastructure, he said.

Hospitals and diagnostic players aren’t the only beneficiaries from this theme. “The generic pharmaceutical export companies are also well placed for the next year as the pricing pressure for generic formulations has eased substantially,” said Reddy. The rising shortages of drugs in the regulated markets should bode well for the pharma players.

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Sustainability

The green push holds a lot of promise for investors in the future. According to reports, the global green technology and sustainability market is forecast to record a CAGR of 20.8 percent till CY30. A sustainable bet for investors that offers potentially high returns are those companies that capitalise on “renewable energy, EVs, cutting down on carbon emissions, and those that are developing technologies to make it happen”, Aamar Deo Singh said.

However, Singh has a word of caution. The sustainability space is constantly evolving and investors must be quick learners and adapt to the shifting dynamics to maximise gains.

Also read: Eye on elections: Will FIIs flock to India and front-end investments?

The return of FIIs

The decrease in US bond yields and slump in dollar, coupled with the Federal Reserve’s dovish pivot in the December meeting, collectively boosted the investor confidence and prompted FIIs to return to India. After selling en masse during August, September and October, FIIs turned buyers in November and December.

According to analysts, FIIs will be reentering the stocks they sold off earlier this year - large, private banks. Since the large-cap lenders are available at attractive valuations and have sound asset quality, they will be looked at.

Additionally, India’s share in the Emerging market index has almost doubled from 7 percent to 14 percent in the last eight years and is likely to increase further with economic growth, an ICICI Securities report said. This will prompt further inflows into the domestic markets.

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