FAQs: What will the market do in 2024? What will result in a correction?

Indian equity mutual funds have seen equity inflows of Rs 1.6 trillion so far in the first eleven months of calendar year 2023 and brokerage Kotak Securities does not see any major event that can shock retail investors and curtail flows in 2024. Here are a few fun FAQs answered by the brokerage. 

Retail investors are pouring money into mid- and small-cap. funds in India

What will the market do in 2024?
 

The returns in 2024 will depend on the tussle between fundamentals and sentiment. In an entirely ‘fundamental’ market, returns will likely be modest for the market and negative for many stocks. A bottom-up plug-in of our 12-month FVs for individual stocks shows a modest 1 per cent upside for the Nifty-50 Index.  In a less-than-fundamental market, market returns can vary, as it is impossible to factor in sentiment in any market calculus.

What will result in a market correction?

Any market correction will be entirely based on a big change in the market’s expectations of potential returns. "We have no idea though as to what will change the market’s bullish return expectations, which have been reinforced by

the stellar returns of the past three years for ‘new’ retail investors. We can point to a few fundamental factors, such as (1) earnings downgrades (although earnings misses are passe in the current state of irrational exuberance) and (2) higher-than-expected interest rates (unlikely). Increased focus on fundamentals versus flows may result in a correction, but we wonder why investors ask this question but stay invested," said the brokerage.

What will stop retail flows?

Kotak Securities does not see any major event that can shock retail investors and curtail flows. Domestic (decent macro-economic situation) and global (lower interest rates) factors are supportive. The Indian market has seen a significant correction on (1) extreme valuations (2001, 2008) or (2) domestic or global shocks (2004, 2016-17, 2020). "We find this obsession of institutional investors with retail flows quite fascinating; we hope that “sophisticated” investors are not taking their cues from retail flows," said Kotak Securities. 

What are your top-3 buy ideas?

Tier-1 banks are fairly valued in general and expensive in a few cases; tier-2 and tier-3 banks and NBFCs are trading at attractive valuations

"We stick with our positive view on large-cap. banks where valuations are still somewhat reasonable. Most other sectors and stocks are overvalued; Investors have had certain odd arguments for their distaste for banks (peaking margins, bottoming credit costs). These arguments sound odd in that they are very well-known and presumably factored into Street expectations. Anyway, the risk of de-rating is on the lower side for banks, while it seems very high for most other sectors. We assume investors are asking for top buy ideas as they are very comfortable with market valuations," said the brokerage.

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd