Market dynamics to be influenced by favourable cyclical factors in 2024, says Ashish Gupta of Axis Mutual Fund

Ashish Gupta, CIO, Axis Mutual Fund, says stronger economic growth prospects and an improved earnings outlook are expected to augur well for equities in 2024. “India’s growth trajectory is expected to remain on a strong course supported by a recovery in capex and industrial activity," said Gupta, adding that these, among other factors, should continue attracting investors to invest in India.

Edited Excerpts: Q. What are your views on the current market conditions and which sector do you think will perform the best this year? 2023 was an eventful year, with Nifty 50 rising nearly 20 percent and broader markets outperforming the frontliners by a heavy margin as the Smallcap 100 index surged 54 percent, while the Midcap 100 jumped over 44 percent.

As we approach 2024, we need to keep in mind that mid and small cap indices are now trading at a higher end of premium relative to largecaps, and their multiples are supported by high growth expectations. One source of comfort is that Indian indices premium vs emerging market peers is still in line with historic range despite the rally.

The first half of 2024 will be driven by the general elections as well as the interim Union Budget to an extent. Globally as well, 2024 is a year where many of the large countries will be going through elections. India’s growth trajectory is expected to remain on a strong course supported by a recovery in capex and industrial activity.

Overall, stronger economic growth prospects and an improved earnings outlook are expected to augur well for equities in 2024. India continues to be one of the few geographies globally that continues to record strong GDP growth with multiple positive drivers in place to sustain it as well. This factor should continue attracting investors to invest in India.

Looking into 2024, we expect market dynamics to be influenced by favourable cyclical factors, primarily driven by the private capex cycle which is seeing signs of recovery. This cycle is anticipated to be beneficial for capex driven stocks such as infra, manufacturing, commodities, and utilities. Banks are expected to benefit significantly from the corporate re leveraging cycle.

As companies seek financing for expansion and new projects, banks will likely see an increase in credit demand, which should bolster their performance. The effects of El Nino may continue into next year thereby weighing down the rural and agriculture sector and thereby impacting broad based consumption.

On the flip side, a global slowdown can drive down export demand for the export. Further inflationary trends are further adding cost pressures for businesses and end retail consumers. Consumption continues to ebb at a macro level since 2017. While we note healthy trends across discretionary spending, wider consumption continues to see limited growth.

The sectors that we are focusing on are automobiles, retail NBFCs, capital goods, industrials, and realty. Within automobiles, two wheeler OEMs are expected to benefit from a healthy growth outlook aided by rural demand coupled with a revival in export markets over a softer base. In the pharma segment, the upcycle in the US generics market is still young; and one can expect the improved pricing environment to sustain and get stronger.

The IT segment suggests a muted demand outlook for the near to medium term. Major verticals, such as BFSI, retail, and manufacturing remain in a slump. Communications continues to take a hit. We expect a turnaround in the hi tech space, driven by AI demand. GenAI led demand is creating a cushion for enterprise cost optimisation.

Green shoots have already started to emerge in the vertical. Healthcare and travel continue to see positive demand, but we expect the healthcare vertical of India’s IT services firms to moderate as we see moderation commencing on the client side. Q. What are your guiding investing principles as a fund manager? We follow a bottom up stock picking strategy, where multiple factors like the company’s performance, track record, return ratios, and earnings growth among other things factor in.

We also build on the macro outlook, where specific themes like consumption are expected to do well. Now if we are to consider market momentum from the macro angle, whether you look at the short, medium, or long term you find that Indian markets trend in a rather gradual upward trajectory in line with economic growth.

The trigger for each category to perform depends on tailwinds or headwinds in each segment. Q3 performance and in general the last few quarters have seen earnings across domestic sectors (finance, consumption, infrastructure, etc.) outperforming external sectors (IT, exports, etc.). This has triggered material outperformance in the former and a derating in the latter.

Q. Which investment strategy would you advise for investors this year? Despite the Indian market’s strong run in 2023, most of the gains can be explained by growth in earnings. The fact that multiple expansion was minimal is a good sign. For returns to sustain in 2024, we are entering a year with many macro events to look out for.

Elections in India as well as many geographies globally, softening the stance of central banks on interest rates as inflation cools amidst signs of weakness in many large economies. We need to keep a lookout for sustained economic momentum in India and its eventual translation to earnings growth. The best way to protect and grow one’s wealth would be to have a diversified basket of asset classes in one’s portfolio.

Q. There has been a major shift in the investment pattern amongst investors following the pandemic and subsequent wars among countries. How do you think this shift will shape the outlook of the mutual fund industry in the future? The pandemic marked a turning point for the entire finance industry, building on the digital infrastructure that was created over the last decade.

Financial markets saw a marked jump in participation – seen across trends in account opening and market trading volumes. Innovation in financial products and their increased adoption has manifested in the gamification of markets attracting the young population into the markets and driving India’s derivatives volumes to the world’s highest.

Contrasted to derivatives’ short tenure, mutual funds are seen as a way to build wealth for the long run, and the industry is well placed to benefit from increased awareness of its products. The mutual fund industry too has seen changes – with a pickup in passive investing as well as direct distribution of products.

Investors perceive and are using mutual funds as a means of saving for the future beyond and physical assets like gold and real estate. Today, four crore unique investors are invested in mutual funds, in a country of 140 crore people, highlighting a large scope for further adoption. Increased awareness of mutual funds is also visible in monthly SIP flows which have doubled from pre pandemic levels to more than 17,000 crore per month (as of Dec 9, 2023).

Q. More young investors are focusing on mutual fund investments while planning for retirement. Any tips for them to choose the right mix of mutual funds for their portfolios? We always advise investors to stay invested across for the long term and not be worried about short term fluctuations. A few months ago, many were worried about staying invested in mid and smallcaps given their strong run.

I have consistently been asked about whether one should move out of these and get into largecaps. Mid and small cap indices outperformed in eight out of 12 months in 2023 compared to Nifty. The power of staying invested for long, not getting worried about short term volatility, and spreading your eggs across the basket is the best way to create wealth.

Q. The year 2023 was the year of NFOs. Do you think NFOs can help investors prep up their investment portfolios? If we look at the last few years, have helped spread awareness and garner new investors into the mutual fund fold. Many of these NFOs have also helped investors get a taste of what mutual funds offer.

As these new investors get comfortable with equity as an investment class, mutual funds as a vehicle, and the India growth story, we expect investors to explore other categories of funds and focus on building a portfolio of funds across asset classes based on their respective risk profiles. The today offers more than 1450 schemes across asset classes and fund strategies.

The distribution community will play a vital role in channelising these assets into suitable and relevant investment avenues. : Livemint tops charts as the fastest growing news website in the world to know more. Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.