geo-political risks, global slowdowns, quantitative tightening, and high valuations. The RBI has also identified a surge in unsecured loans as a potential risk and has announced policy measures to mitigate the concern. It is essential to closely monitor the credit expansion within the system, given the substantial surge observed this year. A potential default could pose a significant risk to one's portfolio.
Additionally, it is important to monitor both global and domestic inflation forecasts. Keeping an eye on the Fed's position on inflation and policy rates is equally vital, as it has a direct impact on emerging markets such as India. The approaching elections and Union Budget will also significantly affect the markets, likely causing volatility.
It's crucial to avoid being swayed by short-term gains or losses during this period. While we remain positive on the longer-term growth prospects for India, we believe that markets will track earnings growth from here on. We expect domestic liquidity will continue to remain strong and will help support markets even if FII flows slow down due to any unexpected global event.
We also expect that the rally will be broad-based in the first half of the year post which markets will keep getting narrower and stock picking will be the key to generating alpha. We expect infrastructure, capital goods, real estate and PSU themes will continue to play in 2024 though investors will need to be selective in their picks given the recent run-up in these sectors. We also expect financial services to do well going forward given recent underperformance as pressure on net interest margins should peak out in the Q3FY24 post which NIMs should stabilise.
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