Dear reader,
As 2023 draws to a close, investors have much to look forward to in 2024. The prospect of interest rates staying higher for longer has dimmed. In fact, with inflation easing investors are betting on rate cuts in 2024.
At the macro level policymakers have a vested interest to create and maintain a feel-good atmosphere, predicts Vijay Bhambwani. As many as 40 countries including India and the US will hold general elections in 2024. Elections in the UK may occur in late 2024 or early 2025.
To cajole voters, policymakers will try to keep fear levels down and contain bad news. This can be supportive for financial markets. Do read to know more about Bhambwani’s views on other asset classes.
As such the incoming data and initial estimates forecast India to be among the fastest growing large economies in calendar 2024 or fiscal year 2025. Fitch Ratings is the latest agency to project strong economic growth for India, joining S&P Global, Goldman Sachs and the International Monetary Fund.
Meanwhile, easing raw material costs and supply-chain pressures will aid corporate earnings. “We believe India’s structural demand visibility, supply-side reform by the government and healthier corporate and bank balance sheets will enable a further increase in capex across most sectors,” adds Fitch.
Yet, elections can also induce volatility. Heightened polarisation and policy uncertainty can unsettle investors. “Leadership changes--in particular, in the US--could have global repercussions, for example if the US were to take a more isolationist approach,” warns S&P Global.
Countries tend to loosen purse strings in the run-up to elections. This can upset fiscal policy's trajectory. In India the government has to target a significant reduction in fiscal deficit in FY25 to reach its budget deficit goal of 4.5 percent by FY26.
As it is, monetary policy easing by global central banks is contingent on inflation trajectory in the respective countries. The pace of monetary policy easing will be variable across the countries, writes Gaurav Kapur, chief economist of IndusInd Bank.
“The divergence between market expectations on the timing and magnitude of rate cuts versus the central bank’s cautious approach, will produce episodes of volatility in the rates and other markets,” adds Kapur. Do read.
Pertinently, markets are already pricing in most of the positive outcomes. Industry participants are worried that markets are vulnerable to a disappointment after the recent run-up in stock prices, reports FT in this piece, free to read for Moneycontrol Pro subscribers.
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R Sree Ram Moneycontrol Pro
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