What does 2024 look like?

The main ingredient for resiliency and buoyancy of the stock markets on the face of global conflicts was the presumed victory over inflation that the central banks, all over the globe, had been fighting. As per the International Monetary Fund (IMF), inflation is likely to ease to 6.9% in 2023 from 8.7% in 2022, on the global scale.

The feel good optimism led investors around the world to hope for interest-rate hikes to cease or diminish. If the trend continues, the stock markets should continue to rally as well.

However, 2024 also brings further complications to the table in the form of national electoral politics. More than 40 countries will undergo elections in the coming year, including the US and UK. In the Indian subcontinent, apart from India, Bangladesh and Pakistan will also face general elections.

Amongst the major factors that decide upon the flow of funds into the Indian stock market are the composition of the next union government in India and the decision of the US Federal Reserve pertaining to rate cuts.

Historically, whenever, Fed cuts rates, money from developed markets starts flowing towards growth markets like India. After the Pandemic in 2020, Fed cut rates and ran loose monetary policies for many quarters that aided flow of hot money towards Indian equities.

In 2023, until December 28, foreign institutional investors (FIIs) had poured in ₹1,65,450 crore, or $20 billion, into the Indian equities, as per NSDL. This is the second highest flow to Indian equities after 2020, when India had received ₹1,70,262 crore, or $23 billion. The state of the market would be highly impacted by whether such heavy FII funding continues in 2024 or not, which in turn will be guided by Fed's actions.

As for the market's apprehensions linked to the next general elections, the world of business is not divorced from that of politics. With the government being the major investor of capital expenditure in the country, the policies, agenda, mode of execution, and private partners of the government projects affect not just individual stocks but also the flow of investors' funds into the stock market as a whole.

Historically, Nifty50 returns have always been positive six months prior to, and six months after, the results of general elections in India. However, it has also been observed that leap years, in general, have been harbingers of volatility and downturns in the Indian stock market. Thus, even though 2023 has proven to be a great year for the Indian stock markets, 2024 calls for a more cautious approach in taking calls on the stock market.

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