An improving US economy is good for India’s exports, which is currently the key missing link in an otherwise resilient economy.
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A euphoric wave is sweeping across global equity markets. India is no exception and the benchmark indices are effortlessly scaling life-time highs.
Carpe diem, the Latin phrase meaning “seize the day”, most aptly describes the mood among equity investors, following the US Federal Reserve’s indication of a pivot in interest rates. The BSE Sensex crossed 71,000 and the Nifty 21,000 with almost all sectoral indices flashing green. Several stocks hit multi-year highs rewarding investors who believed in equities.
The key trigger was the signal of about three rate cuts by the US Fed in 2024, implying the end of its hawkish stance to rein in inflation. Lower rates usually boost demand and production of goods as the cost of borrowing reduces. A rate pivot has increased chances of a soft landing for the US economy as fears of inflation playing spoilsport in 2024, as it did in 2023, are waning.
So, what’s pumping up Indian equities? An improving US economy is good for India’s exports, which is currently the key missing link in an otherwise resilient economy. Also, an accommodative policy could widen the yield spread between Indian and US treasuries, thereby drawing in FII interest, says Ananya Roy in this article on what’s next for markets.
On a more fundamental note, the benefits of normalisation of pandemic related disruptions are seen trickling down to boost corporate earnings. Lower commodity prices in spite of a war-struck 2023 and cost rationalisation by companies, big and small, have given a leg-up to earnings in the first half of FY2024.
In fact, broadly speaking, earnings growth has so far measured up to back the rise in stock prices. Note that the one-year forward price-to-earnings (PE) multiple for Nifty 50 is still at around 20, in line with the long-term average, but not outrageously expensive. This also underscores the compelling case of better investment opportunities in large-cap stocks than in the small and midcap ones, which have been outperformers during 2023. Besides, this article says all sectoral indices except two – Nifty Media and Nifty IT — have hit fresh highs this year (until date).
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But it would be amateurish to assume that this party would last forever, says MCPro’s Research team. In this article, Crystal ball gazing: the winning investment themes for 2024, the team has stitched together eight themes that may make 2024 too a rewarding year for investors, amid volatility.
For those interested in delving deeper into global market dynamics, this FT article (only for MCPro subscribers) discusses how 2024 could pan out for investors – inflation, bonds, equities, ESG, tech and the AI mania.
Investing insights from our research team
Weekly Tactical Pick: Why you should back this private sector bank behemoth now
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To ensure AI benefits all, India needs to put guardrails in place
The US stock-bond party is running out of punch
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Markets
Capex revival presents long-term investment opportunities in Indian equities: Kotak AMC CIO
Speciality chemical stocks: When will the pain end?
Technical Picks: Copper, Orient Cement, ONGC, L&T Finance Holdings
and Eicher Motors (These are published every trading day before markets open and can be read on the app).
Vatsala KamatMoneycontrol Pro