Trends that defined India's stock market in 2023
The year 2023 has been quite a ride for India's stock market. The mid-cap and small-cap stocks have been on a rollercoaster of a rally, stirring up a lot of excitement among investors. Plus, the IPOs have been lining up left, right, and center, keeping the primary market bustling non-stop. As we stand at the threshold of 2024, let's take a look at the trends this year that defined the Indian stock market and the investment opportunities that lie ahead.
First half of the year remained volatile
At the start, worries about global recession and rate hikes by major central banks caused both Sensex and Nifty to drop by over 6% in the first quarter. However, things changed quickly in April. Strong inflows from Foreign Portfolio Investors (FPIs), the RBI pausing rate hikes, and a sharp fall in crude oil prices boosted the market. This positive trend continued in the first half of the year, with the benchmark indices registering gains of up to 6% by June-end.
Second half of the year proved more promising
India's strong 7.6% economic growth in the September quarter, BJP's decisive victory in three out of five state elections, and strong FPI inflows fueled the rally. Furthermore, positive cues from the US Federal Reserve regarding potential rate cuts in 2024, coupled with a notable uptick in industrial production and encouraging GDP forecasts have all added to the positive sentiment among investors. These factors collectively propelled Sensex and Nifty50 over 17-18% so far this calendar year.
Resurgence in the realty sector
Among the sectoral indices, the Nifty Realty index climbed the most, surprising Dalal Street with gains of around 77% this year. Strong sectoral winds, including increased demand and rising property prices, drove this growth. Among the 10 real estate stocks in the Nifty Realty index, Prestige Estate Projects stood out as the top gainer, boasting gains exceeding 146% year-to-date (YTD).
Auto sector revved to a phenomenal ride
The Nifty Auto held its ground as the second-highest gainer, boasting gains of over 42% thus far. This surge was powered by factors like enhanced economic growth, rising personal incomes fueling greater demand, increased availability of semiconductor chips, and a decline in steel and aluminum prices. Tata Motors topped not only the auto index but also the Nifty50 with a return of nearly 90% thus far. This marks the stock's third-best yearly performance in the last two decades.
Both IT and energy sectors marked impressive gains
Nifty IT and Nifty Energy have risen over 24% each. Recent signs indicating possible rate cuts by the US Federal Reserve in 2024, caused strong buying in Indian IT stocks, driven by the anticipation of increased demand in the US economy. Surge in power sector stocks was primarily fueled by a robust increase in power demand, aligned with the uptick in economic activities. NTPC remained the top gainer among the power stocks with an impressive return of 83.30%.
BJP's win confirms policy continuity
The BJP's resounding victory in three out of five states signals stability in the government. And this triggered a crazy rally in the market this month. There's no denying that the upcoming 2024 general elections will heavily impact the Indian stock market. Past trends show that a stable government boosts investor confidence and leads to positive market reactions. In September, Morgan Stanley warned that the Sensex could crash by 40% if the BJP loses the 2024 general elections.
India's economy is on a speedy growth trajectory
A 7.6% growth in gross domestic product (GDP) in the second quarter of fiscal year 2023 is a definite positive sign. This growth solidifies India's position as the fastest-growing major economy in the world and sets the stage for it to become the third-largest economy globally soon. S&P Global predicts India's GDP growth rate for the fiscal year ending March 2024 to hit 6.4%. Likewise, the IMF forecasts 6.3% growth for India's economy this fiscal year.
Strong earnings growth ahead in 2024
The Indian stock market isn't building a false bubble. It actually has shown sound fundamentals and anticipates continued earnings growth through 2024. HSBC predicts an earnings growth of 17.8% for India in 2024, ranking among the fastest rates in Asia. Sectors such as banks, health care, and energy are best positioned for 2024, according to HSBC. Autos, retailers, real estate, and telecom are also relatively well-positioned. However, HSBC suggests a less favorable outlook for FMCG, utilities, and chemicals in 2024.
Rate cuts are on the way
The RBI recently maintained its main lending rate at 6.5% and projected a 7% growth rate for the country this year. Despite a decrease in inflation, the bank cautioned that it remains above the target due to lingering underlying price pressures. However, this doesn't rule out market expectations for rate cuts in the coming year. Reduced lending rates typically increase liquidity and foster a more risk-taking sentiment in stock markets.
