Despite multiple headwinds at the start of 2023, the Indian markets delivered a strong performance, posting 19-20 per cent growth for the year.
Even as new records were set, investor sentiment remains strong going into 2024, given the lower inflation, expectations of steady to lower interest rates, higher economic growth, and strong inflows.
However, the overriding concern for most brokerages is valuations.
HDFC Securities points out that the Nifty50 index is now trading at 23x its FY24 and 20x FY25 consensus earnings per share, indicating limited upside potential over the next 12 months.
Axis Securities, too, believes that current valuations offer a limited scope of further expansion and an increase in corporate earnings will be the primary driver of the market returns moving forward.
Moreover, given the sharp rally in midcap and smallcap indices, which delivered 46 per cent and 48 per cent returns, respectively, investors are better off sticking with largecaps in 2024.
Here is a list of sectors and stocks -- handpicked by six brokerages -- that are expected to shine in 2024 and beyond:
Sharekhan
As part of the portfolio readjustment for 2024, it would be better to tactically take home some profits in the broader market (small/microcaps), and increase exposure to largecap stocks.
Also there is a strong case to increase exposure to value stocks available at a reasonable price, as against chasing growth stocks that are trading at steep valuations.
Some sectors that may see better times in 2024 are pharma, two-wheeler automakers and IT services.
The brokerage is sticking to its core multi-year investment themes of capex (engineering/ infra/ real estate), capital (banks/ financial services), and consumer (discretionary spending) to ride the multi-year upcycle in the Indian economy.
Axis Securities
Bottom-up stock-picking with a focus on a combination of old economy and export stories should be the key to generating satisfactory returns over the next year.
Key themes are:
Manufacturing: India is on the cusp of manufacturing upcycle and is expected to gain further boost from the policy continuity after the 2024 general elections.
PSU banks: The PSU banks space is expected to continue its growth momentum.
Banks remain well poised to deliver a consistent return on assets/equity of 1 per cent/15-16 per cent with a scope for re-rating.
Non-banking financial companies (NBFCs): Gold loans are witnessing increasing customer traction on account of higher gold prices, improving economic activity of NBFC gold loan customers, and an increase in the risk weight for consumer credit.
This should support gold loan growth.
IT services: IT services will be a beneficiary of the sector rotation theme.
The segment will also gain traction on account of the global interest rate-cut cycle.
Consumption: After a muted performance in 2023, the consumption space is likely to gain traction in 2024.
In particular, the quick-service restaurant space is placed well to deliver strong returns due to its current attractive valuations.
ICICI Direct
On the brokerage s radar is the capex cycle, backed by a combination of core sectors, green growth, and production-linked incentive schemes.
Cement: Healthy utilisations are likely amid expanding capacity. The sector is expected to accelerate expansion by 1.8 times over FY23-27.
Steel: Capacity is likely to double amid green focus.
Annual capex by the top five steel manufacturers is seen doubling over the next few years.
Auto sales: Sales in the sector are at a life-time high and the premiumisation trend is getting stronger.
Banks: They are back on strong footing with robust growth in advances, lower provisions for NPAs, and improving return ratios.
Real estate: It s experiencing a decadal revival with sales remaining robust, the industry getting formalised, and strong end-user housing demand.
Motilal Oswal Research
Given the government s focused approach towards long-term capex across key areas, along with expectations of rate cuts globally in 2024, growth stocks will be keenly watched.
Expect financial services, industrials, real estate, automobile, and consumer discretionary to do well.
Over the next couple of quarters, sector rotation could be an important driver, along with the overall market uptrend.
Valuations will become an important factor in stock selection to drive outperformance in portfolios.
HDFC Securities
Indian economic growth will continue to be led by investments rather than consumption in 2024, indicating growth in industrial, manufacturing, and real estate and allied segments.
Earnings growth is likely to be led by the BFSI, industrial, automobile, cement, and pharma sectors.
Margin benefits for commodity-consuming sectors due to deflation in commodity prices are largely done, so any growth hereon must be volume-led.
The largecap index is expected to offer better risk-adjusted returns vis- -vis the midcap/small cap index led by higher earnings growth and better valuations.
Our preferred sectors are largecap banks, industrial and real estate, power, auto, pharma, OMCs, gas, and capital markets.
We remain underweight on consumer (staples and discretionary), metals, chemicals, and small banks/NBFCs.
Jefferies India
India's economic outlook is robust with likely 7 per cent multi-year GDP growth, as the broader capex cycle is in its early stages and should trend up for 5-7 years.
Nifty earnings growth should remain 15 per cent for FY25 as margin steadies.
Foreign investor positioning on India is light and hence corrections will likely get bought into.
We like domestic cyclicals, such as banks, power, telecom, industrial and property.
We are underweight on IT, consumer and energy.
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