To understand what is coming up next year, lets understand what FY23 has been!

In the first half of the year, companies across the board recorded best-ever results and strong growth, which was mainly on account of pent-up demand and favourable interest rates. But in the second half; companies lost their steam because of Russia Ukraine war, recorded high commodity prices, rising logistics cost, highest ever inflation, interest rates and to top it – the SVB banking crisis in the US. Consequently, markets also performed well during the first half, but once markets got a whiff of the slowing economy and global headwinds, it turned around and started falling. Headline index has fallen by 10-11% from their highs and broader markets have fallen further – there are also stocks that have corrected 20-30% from their highs. Richly priced stocks have corrected the most indicating an expectation of underperformance and high cost of capital, for example all new-age tech companies and high PE stocks like Asian Paints, PI industries, Bajaj Finance, etc

Does it seem like a permanent slow down or has the market taken a breather?

Global- the situation looks difficult even now, with no positive signs coming out still. Be it the ever-increasing inflation, interest rates, no sign of the war getting over or the US/UK banks being in a ‘better’ situation.

India- while even though the global headwinds continue to persist, India Inc. continues to remain strong. Banks are recording healthy loan & deposit growth rates, healthy asset quality and lowest ever provisioning rates, corporate balance-sheets debts are at record lows, government capex has been revised further upwards however private capex is yet to pick up. Housing and car sales continue to remain strong, record high domestic air traffic, tourism continued to remain strong, urban India showed no sign of slowing down, however, the rural India demand has been muted. GST collections are hitting all-time highs and so is direct tax collection. Domestic flows in the stock market continues to remain steady indicating a continued relative strength of Indian markets, however, the foreign flows have been affected which is mainly due to global issues instead of domestic. Rural demand was hit because of the high commodity prices – be it crude, palm oil, food inflation which affected the spending power; nonetheless, all the commodities have corrected nearly 40-50%, rural India is expected to bounce back in first of FY24. Private sector capex is expected to pick up in FY24 as 90% of CEOs of top 50 companies are optimistic of the structural outlook.

Valuations of NSE & BSE have reverted to their median levels which makes them attractive again!

On domestic front, what should be taken a note of is the rural demand and private sector capex picking up whereas globally, all of the above in the near term seems negative and will take some more time for things to settle down.

FY24 seems like a year of consolidation and second half of the year is expected for things to pick up. Some of the companies are available at attractive valuations.

Staying invested in current times will reap healthy returns in medium to long term as structurally India continues to remain strong!