Indian Markets On Path Of Continued Outperformance In 2024, Says HSBC

Positive foreign institutional investor flows in November and strong domestic flows are factors that could extend the bull market into first half of 2024, according to HSBC Global Research.

Stable rupee, lower U.S bond yields, falling crude prices, solid earnings, dropping inflation are few of the positives that will give the markets a strong start in 2024. With general elections slated to take place in the first few months of next year, policy continuity will "trigger a bull run in the first three to four months of the year", the brokerage said.

"We believe all these improvements put India firmly on the path of continued outperformance into 2024," HSBC said.

The brokerage expects FII outflows to reverse as we enter 2024, due to falling U.S. bond yields and peak valuations. However, one of the risks that could impact FII flows is the rebound of China's economy, as it could lead to divestment, it said. But the brokerage sees enough room for both markets to receive the inflow of stocks.

With the approaching election year, the markets could be volatile as the prospect of decisive win of the incumbent government could fuel the bull market. However, a fractured mandate "could trigger a sharp correction".

"Nonetheless, the economy is on strong footing, and even in such an outcome the market is likely to recover on a full-year basis."

While mid-cap valuations have peaked in 2023, it is "time to look at large-cap names, where gains in 2023 have been moderate and offer favourable risk reward".

HSBC sees banks, healthcare, energy, realty, autos, retailers, real estate and telecom as favourable sectors. While fast-moving consumer goods, utilities and chemicals are the least preferred.

In the banking sector the brokerage leans towards HDFC Bank Ltd. and ICICI Bank Ltd., as they will likely benefit from the reversal in FII outflows.

Avenue Supermarts Ltd.'s Dmart and FSN E-Commerce Ventures Ltd.-operated Nykaa are the preferred choices in the consumer retail segment, as they are witnessing a turnaround in their operations.

Zomato, PVR Inox Ltd., Asian Paints Ltd., Bharat Petroleum Corp., Cipla Ltd., KEI Industries Ltd., Voltas Ltd., InterGlobe Aviation Ltd.'s Indigo, Maruti Suzuki India Ltd., Infosys Ltd. and KPIT Technologies Ltd. are other companies part of the brokerage's preference list going into 2024.