Equities are expected to flourish again in an eventful 2024 with market mavens betting on large caps and sectors such as real estate, banks, consumer discretionary and auto.

The New Year will see major triggers such as the general elections, the first Union budget of the next government and the US Federal Reserve cutting rates after hiking them on 11 occasions in 20 months.

The reduction in interest rates by the Fed and other central banks is expected to lead to higher flows from foreign portfolio investors (FPIs) into riskier asset classes such as shares in emerging markets such as India.

The inclusion of India’s sovereign bonds in JP Morgan’s Emerging Market Index from June is another major development in the markets, estimated to bring close to $23 billion.

This coupled with higher FPI inflows into equities could lead to a stable or an appreciating rupee though much will depend on the Reserve Bank of India (RBI), which could soak up part of the inflows, resulting in further swelling up of the country’s forex kitty.

In 2023, the Sensex has risen almost 17 per cent and the Nifty 18 per cent, with both hovering at record levels.

This has come on account of multiple factors such as expectations of a stable government at the Centre in 2024, policy continuity following the results of the recent state polls and soft crude oil prices.

The other factors are a fall in inflation and higher-than-expected GDP growth in the second quarter of this fiscal.

A pause in rate hikes by the Reserve Bank of India and an indication by the Fed to cut rates thrice next year have also contributed to the record surge in stocks.

Investors expect other central banks including the RBI could follow their US counterparts in 2024 to cut rates, though the extent will vary. A key feature of 2023 is the midcap and smallcap stocks outperforming the benchmarks.

The BSE midcap index rose 42 per cent and the BSE smallcap, 45 per cent, which suggests their valuations could moderate along with the flow of money into large caps.

Jitendra Gohil, chief investment strategist, Kotak Alternate Asset Managers, said the outlook for emerging markets, especially India, is better than last year.

``We continue to remain optimistic about India’s domestic macro resilience and expect further possibility of growth surprises in the coming quarters, as in our view, the consensus is underestimating India’s medium-term growth potential,” he said.

“While India’s equity market valuation is expensive, they may remain elevated due to the increased likelihood of a stable government at the Centre.’’

Gohil expects the Nifty to deliver high single-digit gains in 2024. The risk-reward ratios now favour large-caps over mid and small-caps.

A note from Motilal Oswal Broking and Distribution said several key events would influence the markets.

``The general Lok Sabha Election in May 2024 and the first budget post-election would be most important on the domestic front. On the global front, factors such as economic growth, rate cuts, inflation along geopolitical issues would be the key drivers. We expect market sentiment to strengthen further as the ongoing pre-election rally is likely to continue’’.

The focus will be on growth stocks, given the government’s focused approach towards long-term capex across key areas and expectations of rate cuts globally in 2024.

Sectors such as BFSI, industrials, real estate, auto and consumer discretionary could perform well, the brokerage said.