By Jyotivardhan Jaipuria
FY23 was a year of consolidation for markets globally as well as in India against the backdrop of the Russia-Ukraine conflict and the sharp rate hikes by central banks. So what does FY24 portend? We think FY24 will be a better year for equities though returns can be back-ended. We see three positives for the Indian markets. Firstly, the RBI has surprised the market and paused the rate hike cycle. Though they emphasised that this should not be taken as a pivot in interest rates but just a temporary pause, we think RBI will be on hold for many months.
Thirdly, while India will not be immune to a global slowdown, we think it will be the fastest-growing economy in the world. We expect FY24 to see an earnings growth of 10-12% building in some downgrades to consensus analyst estimates. Near term, with the March quarter results season having started, we expect Nifty earnings to grow by 14% y-o-y in Q4.
However, growth is concentrated in a few sectors. Earnings growth would be fuelled by BFSI, likely to account for nearly 60%. However, growth is also dragged down by global commodities. Excluding these (i.e. Metals and O&G), Nifty should post 23% y-o-y earnings growth in Q4. Lastly, the global equity markets will have an impact on India. Here we see a mixed picture. We think the fear of inflation and high-interest rates that characterised markets over the past 15 months is likely to ease with the Fed pausing post a hike in May. But there will be fears of an economic slowdown. How much of that is priced in the markets? History indicates equity markets could surprise positively.
With the first quarter delivering a positive return year for the S&P, an interesting data point to look at is that in every instance of S&P giving a return of more than 7% in Q1, the calendar year was always positive with the average return being 21.6% and median return 26.3%. However, a better way to think about is what markets did in nine months post the first quarter. The next nine months still gave an average 8% return (11% annualised) with a negative return only once out of 13 years. Overall, we think investors should use weakness over the next few months to buy equities and would expect healthy returns over 18-24 months.
(The writer is founder & MD, Valentis Advisors)