EF Digest - January 2024

Dear Investors,

Stock market capped off the year 2023 in great style with both Nifty and Sensex making record highs in December 2023. The markets cheered Fed’s indication in its December FOMC meeting that there will be multiple rate cuts in 2024. The Nifty and Sensex gained nearly 8% in December to close the year above 21,700 and 72,000 levels respectively. India was the standout outperformer in the emerging markets pack and saw increased foreign investor allocations coming to Indian equities. FII flows in December topped Rs 56,000 crores. On a full year basis (CY 2023), in dollar terms, MSCI India USD Index (8.6%) outperformed MSCI Emerging Markets USD Index (4.2%). With Moody’s cutting China’s credit outlook to negative, we expect India to get higher share of FII’s emerging market allocations in 2024.

The broader market (including midcaps and small caps) outperformed in 2023. Among industry sectors, core sectors like Power, Infrastructure, Oil & Gas, PSUs, Metals, Telecom and Capital Goods outperformed in November. India is expected to be the best performing G-20 in 2024 as per IMF’s forecasts and we expect Indian stocks to rally further in 2024. Going by historical precedence we are also likely to see a pre-poll rally in the run up to Lok Sabha elections to be held in April – May. You should continue to invest through SIPs in midcaps and small caps. However, you should also be mindful of valuations and therefore, maintain appropriate asset allocation.

In the commodity markets, gold continued to remain firm at around Rs 63,000 (per 10 grams) levels, while silver slid to Rs 73,000 (per kg). Gold was the best performing asset class in 2022 and had another good year in 2023, giving nearly 15% returns. High US Treasury Bond yields provided headwinds to gold in 2023. Gold can continue to gain further in 2024 if US bond yields decline. Crude oil declined to about $71 - 72 per barrel, which is positive for Indian equity and debt markets. As far as commodities are concerned, you can continue to add gold to your asset allocation for long term portfolio stability.

2023 was not a good year for debt markets due to rising interest rates and bond yields. But Fed’s meeting in December provided confirmation that we are approaching an end of this interest rate cycle. We expect 2024 to be a good year for debt markets since interest rates have peaked. Timing of rate cuts in 2024 is uncertain because the RBI has indicated that rate cuts will not take place till the inflation is below RBI’s target of 4%. We do not expect rate cuts before Q2 of FY 2024-25, but medium to long term bond yields are likely to decline in anticipation of rate cuts. Investors with 3 years plus investment tenures can consider investing in banking & PSU, dynamic bond funds and Gilt funds to benefit from potential price appreciation. For shorter tenures, money market and short duration funds can be suitable investment options.

As we begin the final quarter of this financial year 2023-24, I want to remind investors to complete their tax planning well in time before the financial year closes.

Best Wishes,

Ajoy Agarwal,

(Managing Director)