By Deepak Jasani
The Indian markets has just closed FY24 on a high. Nifty50 spiked up an impressive 28.6%, while the Sensex jumped 24.8% in FY24, the Nifty midcap and Nifty smallcap indices have demonstrated outstanding performance, experiencing surges of 60% and 70% respectively. We could not have asked for a better ending to the year.
Normally, there is a little nervousness in the markets when elections are near. Investors and traders try to keep their positions light due to election results related uncertainties. But this year is turning out to be unlike others.
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As we enter FY25, the broader structure looks positive for the markets though participants are unsure about how much of the positive triggers are already in the price. Here are a few events that will guide the markets for the next few quarters.
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General Elections in India
If predicting market trajectory was difficult, predicting it in an election year is even tougher. This time around the markets have largely discounted the outcome of the elections and the general anticipation is that the current government will come back with a majority.
The market movement will depend on various factors such as the extent of majority of the party and the alliance, vote share gain/loss, post-election political environment, economic policies pronounced by the new Govt including the Union Budget, global geopolitical events, global interest rate expectation and risk-on/risk off sentiments.
Monsoon
As India is an agrarian economy, nearly 55% of the land sown in dependent on the monsoon for its water requirements. Everything related to monsoon is critical for the economy, market, inflation and the RBI’s action. The timely onset of the monsoon is important so is the intensity and spread.
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Hopes are high of a La Nina, which improves the chances of a good monsoon year and end of El Nino pattern by May/June 2024. A good monsoon year will ensure good crop, and food grain production, thereby keeping food inflation and CPI in check. The current dwindling levels of reservoirs across the country may pose a water scarcity issue which in turn may spiral into a larger social, and agri issue.
Geopolitics
A long drawn battle continues in two pockets of the world, Ukraine-Russia and Palestine-Israel. The geopolitical tensions if escalates further have a potential of sending commodity prices namely crude into a spiral. The ongoing war also has an impact on global growth.
Corporate earnings
The market rally cannot last unless it has the backing of good corporate earnings. The World Bank on April 2 raised its GDP growth projection for India by 20 basis points to 6.6 percent in FY25. Morgan Stanley on March 27 raised India’s GDP growth estimates for FY25 to 6.8 per cent. Converting this into nominal growth and applying a multiple, corporate earnings in India (Nifty EPS) could easily grow ~15% in FY25 over Rs.972 for FY24E.
Other global factors
Barring geopolitical tensions, global factors are largely positive. A cut in rates by the US Fed and the RBI MPC later in the year will ease the finance cost for most corporates. What will be interesting to watch is the timing of the start of rate cuts, pace at which the central banks cut rates. Outcome of the US Presidential elections (due in November 2024) could also have an impact on global equity markets and in turn on Indian markets (though not a large one).
India’s growth expectations are on the higher side at over 7% much better than its EM counterparts as well as global peers. How these factors impact the market is something that is set to unfold over time. So far, we expect the impact to be largely positive on an overall basis, though negative triggers/developments can trigger an intermittent correction in between.
(Deepak Jasani is Head of Retail Research at HDFC securities Ltd. Views expressed are the author’s own. Please consult your financial advisor before investing.)
