Indian Market Shows Strong Performance, Market Correction Possible in 2024
The Indian market has outperformed major global markets in the past year and the last decade, with experts predicting a market correction of close to 90 percent in 2024, according to brokerage house Investec. Despite this forecast, a crash with over a 25 percent decline is not expected in the near future due to reasonable valuations and historical imbalances being corrected. While external factors and geopolitics continue to pose risks, India’s vulnerability is lower compared to previous years. Furthermore, India is expected to address its chronic Current Account Deficit (CAD), which will have a positive impact on the investment cycle. Investec remains optimistic about the private Capital Expenditures (CAPEX) cycle, supported by a significant increase in corporate profitability over the past three years.
Preferred Sectors and Stocks for Investment
Investec recommends investing in sectors such as Industrials, Autos, Financials, and Pharma. They suggest considering large-cap stocks like ICICI Bank, Kotak Bank, Bajaj Auto, and Cipla, as well as mid/small-cap stocks like Delhivery, Equitas, AngelOne, Policy Bazaar, Exide, and Petronet. Over the last decade, the Nifty index has seen a considerable 11.7 percent increase in dollar terms, with only US markets surpassing its performance. Similarly, in the past year, the Nifty index advanced by 20.8 percent, slightly below the 22.1 percent jump in US markets, but still outperforming other global peers.
Historical Trends in Market Corrections and Current Account Deficit
Investec’s analysis reveals that the Nifty has experienced corrections of more than 10 percent in 29 out of the past 33 years, indicating an 88 percent probability of such corrections. However, since 2010, corrections of over 20 percent have become rare, except for market crashes caused by external factors like the Global Financial Crisis in 2008 and the COVID pandemic in 2020. The current conditions in India appear to be less susceptible to these external shocks. Moreover, Investec predicts that India will transition to having a Current Account Surplus in the coming years due to factors such as thermal coal sufficiency, increased chemical exports, and net import substitution in electronics. This will stabilize net Goods imports and increase net Services, leading to a structurally positive Current Account balance.
Positive Indicators and Investment Themes
The recovery of the private investment cycle, particularly in manufacturing, and improvements in the Return on Invested Capital (ROIC) of BSE500 companies are seen as encouraging signs for the Indian economy. These improvements come after years of economic reforms and provide a promising outlook for incremental investment in sectors like chemicals and electronic manufacturing. Investec’s investment themes focus on discretionary consumption and infrastructure creation, with a bullish stance on Industrials, Autos, Financials, and Pharma. They take an underweight position on Consumer Staples, IT, Cement, and Metals sectors.
Analyst comment
Positive news. The Indian market has shown strong performance, outperforming global markets in the past year and the last decade. While a market correction is predicted in 2024, a crash is not expected in the near future. Investec recommends investing in sectors like Industrials, Autos, Financials, and Pharma, and suggests specific stocks for investment. India’s vulnerability is lower compared to previous years, and the country is expected to address its Current Account Deficit, which will have a positive impact on the investment cycle. Improvements in ROIC and private investment cycle are encouraging for the economy.
