Indian markets are trading at 15% valuation premium versus 10 year average Bhattacharya, CIO, Equities, Edelweiss MF

Trideep Bhattacharya, CIO Equities, Edelweiss mutual fund said that “We believe that 2024 will be a year of multiple transitions". In his equity outlook for 2024 titled Market Insights analyzing Trends, Opportunities, and What's Ahead for Investors, Bhattacharya foresees a shift in the central focus of discussions and analyses pertaining to markets’ movements and investments decisions.

In 2024, as interest rates turn more favorable, Bhattacharya said that we foresee that a macro debate will be more about “Political Uncertainty" as opposed to uncertainty about movement in interest rates. This shift will be because of national elections in two of the major economies of the world— US and India.

These elections will be closely followed by elections in the UK in early 2025. So, political rhetoric across the globe will be a dominant sentiment which will have a bearing on global markets, feels Bhattacharya. "It will not only have near term implications, but it also contains the potential to shape geopolitical contours in the next four or five years," said Bhattacharya.

Also Read As regards Indian equities, in the medium term, as per Bhattacharya said two positives which give strong and convincing basis for an optimistic view. The first positive is that India Inc’s balance sheet is in de leveraged mode. It is operating at high capacity utilisation. These factors could lead to a capital expenditure cycle in 2024.

The second positive about the Indian markets is the moderating inflation. This could improve consumers’ spending power over a period. Bhattacharya expects that in 2024 inflation and interest rates will begin to fall. It will put some more money in consumers’ pockets. This will boost demand for goods and services in a few sectors as opposed to other sectors.

Besides this, the pace at which interest rates will come down will have a bearing on the growth in corporate earnings to a certain extent, said Bhattacharya. At present, broadly speaking, Indian markets are trading at about 15% valuation premium versus 10 year average. In this context, while large cap stocks’ valuation multiples are trading at par, mid and small cap stocks are trading meaningfully higher than their 10 year historical average, as per Bhattacharya.

Thus valuations are in favour of large cap stocks in the short term, while mid and small cap stocks have the potential to generate superior earnings growth over the medium term. Taking into account these factors, Bhattacharya advised investors to maintain a balanced portfolio across market capitalisations.

"This will be a prudent approach in the present market conditions," said Bhattacharya. In 2024, global growth may reach its lowest point. This means that Bhattacharya expects the global GDP growth rate to slow down in the first half of 2024 followed by a potential rebound in the second half of 2024.

But we foresee that the global GDP growth rate will rebound in 2025. This has meaningful implications for asset allocation for investments going forward. Despite positives, Bhattacharya says we are well aware of a few challenges ahead. Challenges in the form of unfavorable election outcomes, adverse geopolitical events, and higher commodity prices could impact earnings' recovery.

In this backdrop, we expect that the theme of selecting stocks based on bottom up investing will be a key criterion which will result in outperformance in 2024. On the whole, Indian equities will continue to remain as one of the favourite destinations for investors in 2024. Livemint tops charts as the fastest growing news website in the world to know more.

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