The benchmark Nifty and Sensex could see another 8-10 per cent from the current levels, said HDFC Securities in its outlook for equity markets in 2024.
The brokerage said that the market movement in the next year will not be linear, and there will be more volatility.
When asked about the market reaction to the General Elections in 2024, Dhiraj Relli, managing director and CEO of HDFC Securities, said more than the outcome of the elections, the market movement in the next three to four months will decide the market trajectory post elections.
“If we price in everything in advance, and if we assume that the incumbent government will get a clear majority and Nifty rallies from 21,000 to 23,000 levels, then post elections we will have muted response even if we see the incumbent party getting a thumping majority.
"We will see a plateau or a significant correction because profit booking will come then,” said Relli.
Relli said it's in the nature of markets to price everything in advance.
However, good buying opportunities are limited due to elevated valuations.
“Right now, stock picking is daunting.
"It is difficult to see fair value in quality companies at this juncture.
"We are seeing significant momentum in mid and small-caps.
"We still believe significant value in the large caps, in large banks,” said Relli.
However, the brokerage said that markets could belie the expectations if there is any positive surprise from the Fed.
“If the synchronised action of most bankers leads to better inflation management.
"And if instead of three fed cuts, we get four cuts, that would bring more cheer to markets.
"How fast the Fed will rate cuts, how many rate cuts they will do is an equally important piece,” said Relli.
The pace of rate cuts will also have a key impact on the trajectory of foreign portfolio investor (FPI) flows to India.
“The Fed is projecting only three cuts this year; the bond market is saying it will be six.
"If yields do not come off as fast as the market thinks, less money will come to risky assets.
"Or there is a possibility that the money stays in debt for a bit longer.
"And there could be some volatility in emerging markets,” said Unmesh Sharma, head-equities of HDFC Securities.
Sharma added that of all the money that enters India from the FPI route, only one-sixth is from which is dedicated to India.
The remaining amount is coming from funds that are allocated to India.
And with phenomenal gains this year, there could be profit booking from India if rate cuts don't pan out the way the market expects.
The brokerage said its preferred sectors are large-cap banks, industrial and real estate, power, autos, pharma, OMCs, gas, and capital markets.
It is underweight on consumer (staples and discretionary), metals, chemicals, small banks, and NBFCS.
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