Back to basics in uncertain times; quality to outperform momentum
election outcome has come against the market and exit polls estimates. The focus will now be on government formation, analysis of the election verdict by political parties and recalibration of policies. It is likely that support for consumption at the bottom of the pyramid will be considered to create inclusive growth.
The markets will take their time to analyse these developments.
The global backdrop is also changing rapidly. The world is moving from globalisation to protectionism. Interest rates are likely to remain elevated. Fiscal stimulation will recede. Environmental considerations, along with technological disruptions, will adversely impact many businesses.
There are some positives which the market will keep in mind. Higher GDP growth is translating into higher earnings growth. FY 24 Nifty 50 earnings were 3% higher than anticipated at the beginning of the year. FY 25 and FY26 Nifty 50 earnings is likely to witness double-digit growth. The earnings are broad-based, with financial services contributing disproportionately, while IT and chemicals are subdued.
While geopolitical risks exist in the Middle East, Eastern Europe, and the South China Sea, there is no adverse impact on the supply or price of crude oil. The announcement by OPEC and Russia to restore production cuts will keep Oil prices under check. The Fed Rate cut has been deferred from mid-CY23 to the end of CY24. The market believes that the Fed rate cut is a question of when and not if.
With fundamentals in place and if domestic flows remain
