Markets Today: Only a few weeks left before the new year makes its way. For the Dalal Street, 2024 was no less than a moody roller coaster ride of record highs and sharp declines. Amidst foreign capital outflow, geopolitical turbulence and unexpected rate decisions by global central banks, what eventually turned out as a major 'saviour' for the Indian stock market was DII (Domestic institutional investors) confidence.
However, as Q2 results came-in, coupled with some setbacks in macro-indicators, the market again went on a downward spiral. December did start with some level of optimism but the Fed's hint at slower rate cuts again sent shockwaves across the D-street.
Despite all this, many analysts are still positive about the market's trajectory, citing its 'resilience' as compared to its peer markets. In an exclusive interview with Outlook Business, Dr. Ravi Singh, SVP of Retail Research at Religare Broking, talked about how the term 'resilience' in markets might be overplayed, given the recent headwinds and valuation concerns.
2024 has been quite an eventful year. From record highs to a major crash, how has this year been for you?
So, in 2024, there have been a few key factors that have prevented the market from sustaining in higher zones. First, geopolitical tensions are still ongoing and that brings fear for the future. Second, we've seen strong volatility in crude oil prices towards the end of the year, which has had an impact. Another major factor is the US election, which has delayed decisions and created uncertainty. Lastly, there's China.
Over the past few months, they've been changing policies, especially in the metal industries, which has made FIIs (foreign institutional investors) more focused on China rather than India. As a result, Indian markets have witnessed significant profit booking. In the higher zone, we've seen around 40 to 45 per cent of profit being booked across most sectors, except for a few like FMCG, pharma, and oil marketing companies.
Despite the correction, many analysts have used the word "resilient" to describe the Indian market, especially when compared to its peers. Do you think we're overestimating this resilience, given that valuation concern is still very much present?
Perhaps, yes. This resilience seems to be largely due to selective sectoral performance. In terms of long-term growth prospects, there’s some optimism in the Indian equity market. However, if you look at the PE ratios, many stocks are still trading at high valuations. So, for long-term investors, the market is not as attractive as it might seem, and that’s why we have seen this correction. So, at some levels, we can say the word “resilience” is surely being overplayed.
With the RBI delaying interest rate cuts and Q2 corporate performance being a major dampener on investor sentiment, do you think this will add further pressure on Q3 performance?
100 per cent, I must say. If there is any tightening in the equity market or no cut in interest rates in the longer-run, it will definitely impact Q3 performance. Inflation, particularly core inflation, is still not under control and the agriculture sector is already facing challenges. This could further drag down corporate earnings.
If interest rates remain high and consumer demand weakens due to inflation or tightening fiscal policies, it could lead to slower growth in key sectors. This, in turn, would be reflected in the stock market, especially in sectors like consumer goods and discretionary spending. If earnings growth slows down, we could see further corrections in stock valuations.
IPOs, promoter selling, FPOs, and ofcourse the record flow in SIPs. Given the excess liquidity in the market, do you think fund managers might be running out of good stock options?
When we talk about mutual funds and long-term investments, there are two key points. First, mutual funds typically have a 3-5 year investment horizon. They don’t change their positions without significant reasons or changes in a company’s fundamentals. Second, the influx of capital has led to higher valuations, making it more difficult to find undervalued stocks. As a result, fund managers may be forced to explore riskier assets or unconventional market opportunities. Plus, the excess liquidity in the market could lead to inflated asset prices, which would reduce the prospects for gains.
The excessive liquidity has made it challenging to find undervalued opportunities in the market, and that's leading fund managers to take more risks in their asset choices.
Despite being one of the most prominent companies in the Indian stock market, Reliance's shares have struggled to perform this year. How do you see Reliance's future performance?
Reliance is a major company in India, and no investor's portfolio is complete without it. Over the past decade, Reliance has expanded its business significantly, and while the stock has not performed well recently due to its need for funding, I believe the negativity surrounding it is over. Over the next three to five years, I expect Reliance to deliver consistent returns of 14-18 per cent, making it a reliable stock for long-term investors. From a technical perspective, the current levels of Reliance stock are attractive for investment, and we may see it reach the 1600 level soon.
We might see some pressure on their cash flow, Ebitda, and profitability in the short term, but overall, I don't foresee any major issues in the long run.
With major FII outflow and geopolitical turbulence playing out, 2024 has been quite a year for the stock market. Considering this, how do you think 2025 will pan out for investors?
There are both risks and positive factors to consider. First, the risks: number one is the ongoing geopolitical tensions, followed by crude oil prices, policy decisions and interest rate decisions. These four factors are what the market is currently watching.
On the positive side, there's corporate growth, and of course, the budget announcement for Indian equity markets is crucial. I expect every investor to pay close attention to the budget, as it could provide valuable guidance for planning the year ahead. In terms of sectors, I would recommend focusing on banking, infrastructure, railways and defense.
These sectors have seen significant upward momentum and are well-positioned for growth in the coming years. I believe they may offer returns of 20-25 per cent from current levels.
Finally, with the budget coming up in February and December nearly over, how do you see the market trajectory in January?
After January 15th, I expect to see some upside momentum in the market as budget estimates start coming in. Right now, many people are in holiday mode, so we may not see much movement over the next week or two. As for the market’s current state, I believe it is trading in a narrow range of 24,000 to 24,750. Investors may find comfort in this range, but if the market moves beyond this, we could see some volatility, either upward or downward.
