Market outlook 2024: Over to the interim Budget, general elections

The only concern for the markets, analysts say, is whether the cumulative rate hikes executed across the globe would lead to growth slowdown, or will the global economy recover significantly

With all the key economic events, such as the Reserve Bank of India (RBI’s) review of the monetary policy back home and the outcome of the US Federal Reserve policy now known, the curtains are now nearly drawn on calendar year 2023. 

The baton so far as the domestic events are concerned, analysts said, has now passed on to the interim Budget / vote on account and the general elections in the year ahead, which will be the guiding lights for the Indian markets. 

These two big events along with global developments – geopolitics, interest rate trajectory, oil prices and bond yields, and foreign institutional investor (FII) and domestic institutional investor (DII) flows in this backdrop, they believe, will shape how the markets play out in the first half of the next calendar year.

Global equity markets, according to G. Chokkalingam, managing director for research at Equinomics Research, are quite optimistic that the rate cycle is over. 

The only concern for the markets, he suggests, is whether the cumulative rate hikes executed across the globe would lead to growth slowdown, or will the global economy recover significantly.

“We maintain a bullish outlook on the overall markets in the short-term due to the recent severe fall in oil prices, State election results and consequent anticipation of political stability and economic growth outlook. The S&P BSE Sensex is likely to scale up to 73,000 levels before the general election in 2024. Any possible rally in oil alone can spoil the domestic markets’ outlook,” he said.

On the political front, Bharatiya Janata Party's (BJP’s) win in the three state elections of Madhya Pradesh (MP), Rajasthan and Chhattisgarh, analysts at Jefferies believe, reinforces the consensus expectations of a Modi win 2024 national elections with a greater likelihood of over 300 seats for the BJP. 

This boost to the investor sentiment, said Mahesh Nandurkar, managing director (MD) at Jefferies, should augur well for domestic cyclical sectors such as banks, industrial, power, property and mid-caps. 

The return of a strong majority for the BJP, experts suggest, would signal policy continuity and fiscal consolidation in the medium-term. In the run-up to the elections, the government has already extended the free food scheme by five years, increased LPG cylinder subsidies, and extended food export bans.

“If the opposition alliance engages in competitive populism and the BJP sees its support waning, then there is a risk of more sops being announced. For fiscal 2024-25 (FY25), we expect the next budget to pencil in fiscal consolidation, but weaker growth is likely to make consolidation tougher,” wrote analysts at Nomura in a recent note.

Neelkanth Mishra, chief economist at Axis Bank and head of global research at Axis Capital, meanwhile, believes that the Indian and global central banks have decoupled to some extent. 

The Indian markets, he believes, are likely to undergo a correction as price-earnings (PE) multiple remains high. If the correction in global markets is orderly, Mishra expects undervalued sectors such as financials, utilities, auto and cement to gain strongly.

“While the markets expect the US and the European central banks to cut rates aggressively, we do not expect the RBI to cut rates in 2024. That's because their focus remains on inflation. Once global financing conditions ease, the RBI may inject liquidity, effectively driving a rate cut. Higher cost of capital will trigger a correction in PE multiples, but supportive earnings will provide a cushion,” he said.