2024: Equity Outlook
2023 defied the consensus view of moderate equity returns given the background of rising global interest rates, limited scope for valuation expansion and elevated crude prices amid geo-political tensions. The Sensex delivered a total return of 19.1%, majorly supported by earnings growth. BSE Mid cap and BSE Small cap indices delivered returns of 44.7% and 46.7% respectively. Returns in large and mid-cap indices were majorly driven by earnings growth with flattish earnings multiple. This is indicative of the strengthening of the earnings upcycle which commenced in FY22. (Note: YTD Return figures as of Dec 15, 2023 are considered)
Key Triggers to decide market direction in 2024:
·
Demand Pickup in mass segment
Demand
in mass market and rural segments remain muted since the pandemic due to
inflationary pressures. A moderation in inflation could support a recovery in
the mass market segment, further strengthening the ongoing economic upcycle. While
the earnings growth in recent quarters was driven by margin expansion, volume
growth driven by broad-based demand could
support earnings growth in 2024. Volume recovery in rural focussed two-wheeler
sales indicate green shoots in rural consumption.
·
Private Capex Revival
Most of the recent capex was driven by government sector. As per RBI survey, capacity utilisation in manufacturing sector is near a healthy level of 74-75%. Buoyant demand environment along with a pickup in utilisation could strengthen the private capex trajectory. Private capex is showing early signs of revival. As indicated in the below graphs, share of private sector in new project announcements has meaningfully improved.
Private
Sector Leads in New Project Announcements:
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