Echoing similar remarks, Rahul Ghose, Chief Executive Officer (CEO) of investment tech platform Hedged.in in an interview with Mint’s Nikita Prasad, said that the stock market is likely to consolidate in the new fiscal 2024-25 (FY25) after the high-octane general election results’24 and that Nifty 50’s maximum upside is capped at 24,300.
Ghose also highlighted that India offers an edge to foreign investors with strong macroeconomic growth and double-digit returns on equities. Among high-growth sectors, the market expert suggests that investors must focus on sectors like renewable energy, electric vehicles, and infrastructure as these will benefit from government initiatives and increasing consumer awareness.
Edited excerpts from the interview:
1) The Indian stock market wrapped FY24 with healthy gains. Nifty 50 soared by 29 per cent, logging its best performance in three fiscal years, while the Sensex saw a rise of 25 per cent. What kind of market movement do you foresee in the next 6-12 months?
The next 12 months will see a period of consolidation in the indexes in India. The bottom end of this consolidation in Nifty would be 19,000 and the upper end would be 24,300. There are two caveats to the above levels:
1)If there is a clear majority for BJP as a party and not NDA as an alliance.
2)The electoral bonds issues go out of hand and lead to something bigger being unearthed.
The common consensus in the market today is that the indexes will correct post-election results. Markets seldom follow a common consensus. Even though a correction is imminent and expected this year, it will come at a time when it is least expected of everyone.
2)With major events lined up this year such as General Elections and the budget session in July, what will be the key triggers for markets in FY25? What are your favorable stock picks ahead of the General Elections?
Historically, governments with strong mandates have always focused on infrastructure development as it tends to create a ripple effect in the economy. A government with a thumping majority is likely to boost infrastructure spending, benefiting companies in the infrastructure sector. Stocks like L&T, Reliance Infrastructure, and NCC could see positive momentum in such a scenario.
It is important to note that, both L&T and NCC have gone up sharply and are overvalued. Thus, a correction in both of these stocks can be a good buying opportunity. L&T can be considered for entry around 3,100-3,200 levels, whereas NCC looks attractive around the levels of 185 to 175. These are the breakout points and prior resistance areas in both these stocks. In the event of a correction, the prior resistance areas are likely to act as strong supports.
A stable government often leads to improved investor sentiment, which can positively impact the banking and financial services sector. Banks like HDFC Bank, ICICI Bank, and Kotak Mahindra Bank could be well-positioned to benefit from such a scenario.
Technically, Kotak Bank is best placed as it is one of those banks that has not run up and valued attractively. It is trading around weekly and monthly support levels with a potential bullish candlestick signal. From the charts, one can also see Kotak trading around the lower end of the range enhancing the probability of the stock going up on a positive trigger from budget.
3) FPI inflows in Indian equities and debt markets have been steady so far in 2024, after a net investment of ₹2.37 lakh crore in 2023. What kind of activity by foreign investors do you anticipate in FY25? What makes India an attractive investment pick for them?
FPI inflows in FY 2024 have indeed been robust. Out of overseas flows into India during FY24, overall flows into equities crossed the ₹2 lakh crore mark after two consecutive years of outflows propelling the benchmark indices into fresh highs, even as robust domestic flows supported the gains.
Even as we move into FY25, FPI inflows are expected to remain buoyant, thanks to the combined effect of favourable positive macros like India’s strong economic growth, an expected decline in the US interest rates, softening of bond yields, and the dollar index. Lower bond yields and lower dollar index make emerging market (EM) investments attractive for the FPIs.
Very few markets in the world give foreign portfolio investors an edge, which India offers along with the size of the Indian economy, double-digit GDP growth, double-digit corporate earnings growth, and double-digit return on equities. Certain sectors like technology, renewable energy, and pharmaceutical provide huge opportunities and would continue to attract FPI interest moving forward.
4) Coming to commodities, global crude oil prices have started rising again, having hit a 5-month high in March over geopolitical conflicts. Will Indian markets be resilient to external headwinds in FY25? Do you think OMC stocks will be able to withstand more selling pressure?
I believe that the Indian markets have shown resilience to external headwinds in the past and are likely to do so in FY25. While rising global crude oil prices due to geopolitical conflicts could pose challenges, India has built a strong foundation that can help withstand such pressures.
One key factor is India’s increasing focus on renewable energy and electric vehicles, which can reduce its dependence on fossil fuels in the long term. Additionally, the government’s proactive measures, such as strategic oil reserves and subsidy rationalization, can help mitigate the impact of rising oil prices on the economy.
Regarding OMC (oil marketing company) stocks, they may face some selling pressure in the short term due to rising crude oil prices. However, OMCs have shown resilience in the past and can pass on increased costs to consumers through retail price adjustments.
Moreover, the government has often stepped in with policy measures to support OMCs during periods of volatility. Investors should focus on the long-term prospects of these companies and the broader market fundamentals, which remain strong, to navigate through these challenges in FY25.
5) Going by the latest US Fed policy verdict, global central banks seem set to cut interest rates in 2024. When do you think the RBI will adopt a similar approach this year and how will markets react to rate cuts?
I believe that the Reserve Bank of India (RBI) may adopt a similar approach to cut interest rates in 2024, but the timing and extent of rate cuts will depend on various factors. While the Fed has already indicated that policy rates are likely to be reduced in the coming months, the growth and inflation dynamics in India suggest that the RBI may just keep rates elevated for longer.
However, if major central banks like the US Fed and others cut interest rates, it could create a favorable environment for the RBI to reduce rates and support growth. If inflation remains within the RBI’s target range and economic growth shows signs of slowing down, the central bank may consider rate cuts to stimulate economic activity.
Rate cuts by the RBI are generally seen as positive for the markets. Lower interest rates can boost consumption and investment, which can benefit sectors like consumer goods, automobiles, and real estate. Additionally, rate cuts can lead to lower borrowing costs for businesses, which can improve their profitability and stock performance.
6)The Q4FY24 earnings season is fast approaching. What is your expectation on Nifty 50’s EPS growth for FY24 and which sectors are you most bullish about? Going forward, which sectors should investors focus on in FY25, for eyeing maximum returns?
Most analysts expect Nifty EPS (earnings per share) to grow at a compound annual growth rate (CAGR) of 12-13 per cent between FY24 and FY26. In terms of sectors, I am most bullish about the IT (information technology) sector. The sector has shown resilience during the pandemic and is expected to benefit from the global digital transformation trend.
Additionally, sectors like pharmaceuticals and FMCG (Fast-Moving Consumer Goods) are likely to perform well due to their defensive nature and consistent demand. Looking ahead to FY25, investors should focus on sectors that are poised to benefit from the post-pandemic recovery and structural trends. I believe sectors like renewable energy, electric vehicles, and infrastructure will offer significant growth opportunities. These sectors are expected to benefit from government initiatives and increasing consumer awareness.
7) Do you think stock markets will generate similar returns for investors in 2024 as last year? Where do you think Sensex and Nifty 50 levels will reach by the end of FY25 and what key advice do you have for traders?
No, I don’t think that FY 2025 will generate even close to the returns FY 24 gave. The maximum upside that I see from here is capped at the 24,300 level. This year is going to be of consolidation, but large volatility in a broad-based range mentioned earlier.
My advice to traders for this year would be to go with fully hedged strategies. I would advise the use of certain strategies that are not vanilla in nature depending upon the view one has in the market. For example, if their view is sideways, look for a short straddle using monthly options, but take offset hedges using the first weekly expiry or the second weekly expiry in the indexes.
Disclaimer: The sector(s)/stock(s) mentioned do not constitute any recommendation of the same and Hedged.in may or may not have any future position in these sector(s). Past performance is not an indication of future performance.
These are the independent views expressed by the interviewee and are based on the current market/ policy scenario. These views alone may or may not be sufficient and should not be used for the development or implementation of an investment strategy.
The views and recommendations above are those of individual analysts, experts, and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 31 Mar 2024, 08:36 AM IST