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Cover Feature

Published on: Jan. 19, 2024, 11:50 a.m.
Outlook for 2024
  • While it might be challenging to find low-hanging fruit in the midst of a bull run, one can patiently wait for corrections

By Daksesh Parikh. Executive Editor, Business India

This time around, it may be easier to predict the outcome of the Lok Sabha elections, likely to be held in April or May, than to predict the outcome of the markets for 2024. As it is, predicting stock markets is usually a difficult game. But it is even more difficult during a bull run, like the one we are currently witnessing. Even when cattle were stampeding on a trail in the wild west, a single distraction — whether a gunshot, a small fire, or some noise — could easily bewilder the leaders. In their fear-induced confusion, they would sometimes reverse direction, causing bedlam among the followers who, in turn, would also panic.

In an election year too, there are many imponderables which could reignite confusion and fear and set the tone for disrupting the rally any time before or after it. However, investors normally do not look at remote chances but rather enjoy the current rallies.

The pre-election rally which started in September last year went on until the close of 2023, spilling over into the new year. The Sensex had, in September 2023, made an intra-month high of 67,927 and went on to make an intraday high of 72,561 in December. In the calendar year 2023, the Sensex gave the substantial return of 18.1 per cent. Emotions of joy, fear and anxiety amongst traders and investors also ran in tandem along with the galloping Sensex. 

The factors sending the Sensex into unchartered territory are too well known to be repeated here. Indeed, every bull run seems to differ from earlier ones. The only common factor is that at the height of all bull runs it appears that good times will never come to an end. Heightened bullish sentiments run all the way across bull runs and, in most cases, investors go into denial mode, even after the bull run loses momentum. Besides, another common factor is money. Money continues to chase shares.

In 1991-92 it was the money from the banking system which fuelled the bull run in the share markets. Money from PSU banks as well as foreign banks found ways to fuel the buoyancy in the markets. In 2000, it was money from the cooperative banks which did this. In 2003, the markets were at their lowest levels and with the government about to roll out its disinvestment plans, it made sense to invest.

This time around money is also pouring in, both from the domestic markets and the FIIs, but through legal channels. Investments in mutual funds have crossed Rs50 lakh crore. New investors have also joined in the crores ever since Covid struck. The number of investors has gone up to 8.49 crores from under 1 crore in 2003.  FII funds which were negligible in 1992 (Rs30,000 crore) are now worth Rs1.71 lakh crore. These investors are young, tech savvy and more knowledgeable than investors in 1992 who used to madly chase stocks that the Big Bull, Harshad Mehta, was buying.

  • Banks, on the whole, are performing well, with NPA levels decreasing and a turnaround in profitability over the last 5 years

In earlier times the expectation was that the Indian economy would improve. This time we are already in an economy which is performing well and is expected to do even better in the future. The rising GDP, expected to be around 6.5 for FY24, positions it amongst the faster growing countries in the world. Alongside the economy’s growth, pride among Indians is also increasing. Many expect the present BJP dispensation to be re-elected for the third consecutive term. 

It is no longer a question of who will win the elections; as far as investors are concerned the debate revolves around how many seats Narendra Modi and his team win and what the margin of the victory will be. The market is also expecting a continuation of the ruling party’s policy with more emphasis on sustainable growth and how to make India a manufacturing hub for the world. 

Beyond the factors contributing to the bull rally, two major issues linger among sections of investors: how long will the bull run sustain and should one enter at these levels or book profits? 

The P/E factor

Given that markets move ahead of fundamentals, expectations often tend to eclipse reality. The current market levels are not inexpensive. The P/E ratio, a widely tracked measure to monitor markets, is high. Towards the end of December, when the Sensex reached 72,240 the P/E ratio for BSE 30 shares was a little under 25 – 24.93 to be precise. This marked the highest level for 12 months. In January 2023, the Sensex was at 59,550 and the P/E was 23.28. The P/E had risen to 24.93 in July. July and December have witnessed the peak values of the Sensex in relation to earlier months. 

The P/E of the BSE 500, which covers more than 90 per cent of companies by market cap, was 25.3x in December 2023 compared to 22.72x. While a high P/E is certainly a cause for concern, as it signifies high expectations, it is not a red signal in itself. A high P/E indicates heightened expectations that the company will continue to perform better.

If the growth in corporate earnings is generally in line with expectations, the P/E will likely revert to the mean level. P/E levels did drop in October and November, even though the Sensex remained around 63,000-65,000. This was largely due to quarterly corporate results meeting expectations. The question now is whether the next set of results, for December-end and March-end, will be able to meet expectations.

As anticipated, the IT industry is unlikely to post significant profit growth, leading to a decline in the prices of IT shares. However, there is no real sell-off witnessed in these stocks, as investors believe that a challenging year or two is unlikely to have a grave impact on the overall scheme of things. Holding onto these shares at current levels may make sense.

  • The IT industry is unlikely to post significant profit growth

Oil and gas and FMCG are the two other large constituents of the Sensex, accounting for roughly 11 per cent and 9 per cent respectively. Given that consumption forms a major part of the Indian economy, and given the growing trend of premiumisation, consumer facing companies, including FMCG, will do well. India has the advantage of having many sectors, allowing for resilience even if a few of them are underperforming at a particular point in time.

Sector rotation is always possible in any kind of market. For example, one could choose between automobiles and commodities if one or the other is not performing as expected. In a growing economy like India steel, aluminium and cement will always be in demand, as will several other companies in the manufacturing and infrastructure space. 


If the aim is to make India a partner of choice for manufactured goods, the country will require significant infrastructure build-up. Currently, the government is the largest capital expenditure (capex) spender in the country, with funds pouring in from increased GST and other taxes. India boasts one of the largest road networks among major countries, with a total length of 66.71 lakh km, comprising National Highways, State Highways, and other roads.

Since 2014, National Highways have seen substantial expansion from around 91,000 km to nearly 1.5 lakh km. Apart from highways, investments are flowing into various other segments, including railways, ports, and airports, to enhance connectivity. Numerous new trains have been introduced as part of this initiative. Investors often avoid companies directly involved in project execution, citing lengthy project timelines and frequent deadline overshooting.

However, a prudent approach is to invest in companies overseeing the execution, such as those involved in design, construction, and contracting. This strategy also holds true for the realty sector. Except for a few companies involved in end-to-end execution, it makes sense to invest in proxy companies like tile manufacturers, sanitaryware makers, and cement companies. Investors have recognised this trend, leading to increased interest in EPC (Engineering, Procurement, and Construction) companies like L&T, whose shares have surged 2x, 3x, to 4x over the last year.

Should one consider investing in such companies? One argument suggests that these companies, listed in the last 2, 3, or 4 years, were initially under-researched and are now being correctly priced. While it might be challenging to find low-hanging fruit in the midst of a bull run, one can patiently wait for corrections to gain exposure to such companies. Intermittent corrections are expected in any rally. The interim budget could trigger one such correction, as traders hype sentiments despite knowing that no major announcements can be made in an election year.

  • Path to prosperity: India boasts one of the largest road networks among major countries, with a total length of 66.71 lakh km

Another scenario could involve profit-taking post the announcement of actual results or during the formation of the new government. Traders who entered early might seize the opportunity to book profits and wait for a few sessions before the pre-budget rally, expected in July, starts again. Investors should use such correction periods to reshuffle their portfolios and move towards more quality stocks.

Business India, which has witnessed many such rallies and dips over the last four decades, is of the opinion that the economy is in fine fettle. Corporate results are expected to be positive. While disappointments may occur for various reasons, in an election year, the rally is unlikely to lose momentum quickly. Although the chances of the ruling party losing elections are slim, there is always that probability. Overextending oneself by taking loans is unwise.

Exiting investments during such times might be unwise unless one is reshuffling the portfolio to move into better quality stocks. Instead of trying to enter newer small-cap stocks during a bull rally, where many traders aggressively promote such stocks, it makes sense to stick to large-cap stocks. While opportunities exist for gains in small caps during a bull run, the risks are higher, with several traders pushing potentially risky stocks, often citing reasons like takeovers by companies from large corporate houses.

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