Strong rates of economic growth can boost corporate profits and increase investor confidence. Likewise, an expanding economy often attracts foreign investment, further fuelling equity markets. This backdrop bodes well for the country heading into 2024 and beyond but here are five areas, in particular, we’ll be keeping our eye on.

Elections: Stability amid volatility

The 2024 Indian general elections are a pivotal event, with the Bharatiya Janata Party (BJP) led by Narendra Modi likely to retain power. The BJP led in the recent state elections of December 2023, further demonstrating the party’s popularity and likelihood of winning in general elections.

Such political continuity suggests sustained reforms and economic policies. The past decade under BJP’s governance has seen significant deleveraging and reforms. Despite likely heightened market volatility around the election period, we believe the long-term outlook remains positive, with a strong foundation set for continued growth and stability post-election.

Oil and energy prices: Navigating external shocks

India’s economic landscape continues to be influenced by global energy dynamics, especially in the aftermath of conflicts such as the Russia-Ukraine war and tensions in the Israel-Palestine region. As one of India’s largest imports, oil prices pose a significant risk.

However, the country’s robust foreign exchange reserves and potential financial inflows from its inclusion in the JP Morgan bond index could mitigate Current Account Deficit (CAD) pressures. This dynamic demands careful monitoring, as it directly impacts India’s macroeconomic stability.

PLI scheme and manufacturing: A new era

India’s manufacturing sector is poised for a transformative leap, with the production linked incentive (PLI) scheme attracting global giants such as Apple and Samsung. The potential entry of Tesla, driven by attractive domestic manufacturing incentives and access to India’s vast consumer market, marks a significant milestone. This shift not only diversifies India’s manufacturing base but also reduces tariff burdens, making it an attractive destination for international companies seeking to decentralise their manufacturing bases.

The AI challenge: Reshaping the IT landscape

The rapid advancement of artificial intelligence (AI) presents a formidable challenge to India’s traditional IT outsourcing model. The rise of Global Captive Centres signifies a shift towards in-house, more efficient operations by global corporations. This trend threatens the business models of many listed Indian IT service providers, demanding a strategic reorientation towards innovation and higher-value services to maintain competitiveness in the evolving digital landscape.

Indian consumption: A pillar of economic strength

The Indian economy’s backbone, consumption, is witnessing a significant upswing, particularly in the real estate sector. This resurgence has a substantial multiplier effect on the economy, signalling a robust increase in consumer demand. With consumer leverage still at modest levels, the trend towards increased spending is expected to bolster the consumption-driven sectors. Investors should closely watch this trend, as it offers insights into the broader health and direction of the Indian economy.

Conclusion

In our opinion, investing in India in 2024 requires a nuanced understanding of these five key themes. The political landscape, external economic shocks, manufacturing incentives, the technological revolution in AI, and the robust consumption patterns collectively shape the investment climate.

Navigating these themes with a balanced approach, focusing on long-term trends while being cognisant of short-term volatilities, will be crucial for investors looking to capitalise on India’s growth trajectory.

It is one which is shaping up to be strong as indicated by the government’s recent revision up of its GDP forecasts suggesting continued economic expansion in excess of 7% for the foreseeable future.

Andy Draycott & Abhinav Mehra are co-managers of Chikara Indian Subcontinent fund

Artificial Intelligence (AI), onshoring, and wellness & beauty continue to provide strong thematic tailwinds and have propelled a number of market leaders.

Key opportunities for 2024

This year, a key opportunity will come from the disconnect between earnings and market growth expectations. There are companies across the global equity landscape that haven’t experienced earnings downgrades, yet the market is forecasting their growth to slow considerably. Many of these names have more structural drivers than cyclical ones, even if there is some element of cyclicality in their models, meaning they could well surprise to the upside as we progress through 2024.

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The consumer sector hosts many examples, with two that sit within our ‘millennial consumer’ portfolio theme being Ulta Beauty and American Express. Both are trading at close to trough valuations on the belief that growth has peaked and will slowly contract. We do not share this view and instead expect as we move to peak rates for growth to hold up and these stocks to re-rate.

Onshoring should remain a major tailwind going into 2024. The US has approved a $1.2 trillion stimulus package in the form of the Infrastructure Bill. Some $300 billion has already been ear marked and should provide support to many industrial and construction companies and those providing consulting to these projects. There have been some gains on stocks in these areas early last year, but these have since consolidated and we expect to see a significant step up in activity by the second half of 2024.

See also: Why investors need to take outlooks with a pinch of salt

We also expect to see continued momentum in our ‘health & wellbeing’ theme, notably in the areas of diabetes and obesity treatments. These have seen a major inflection fuelled by the Novo Nordisk game-changing Wegovy weight loss drug. Supply remains constrained and there is excess demand for the drug. We expect Novo Nordisk to continue to see outsized growth, and industry peers launching similar treatments should also benefit.

The other area worth highlighting is automation where inventories have normalised and we are close to the bottom of the cycle, so the market should look ahead and see that these companies are well positioned for the next cycle.

In AI, we expect to see greater divergence between winners and losers this year, with performance favouring names that are true beneficiaries. NVIDIA has enjoyed tremendous first-mover advantage, but over time, we expect other winners to emerge.

What surprises could this year bring?

In terms of positive surprises, one could be a sharp fall in inflation. While this is certainly possible, the risk is that specific areas, like shelter, could stall a decline as rents remain high and there is a shortage of affordable housing. Conversely, inflation could also deliver a negative surprise if it proves sticky and demanding of further rate rises, taking us into a hard-landing scenario. But our expectation is for a positive inflation outcome and we are positioned accordingly.

See also: What does 2024 hold in store for the wealth management industry?

Elsewhere, we expect the influence of the ‘Magnificent 7’ to become more nuanced. Microsoft will likely remain a lead name, supported by growth in the Azure cloud business and the approval of the Activision Blizzard deal. We see more quarters of growth ahead for NVIDIA and we believe Amazon is well positioned to strengthen, while Tesla will likely require an inflection in economic data to strengthen materially.

We expect the market to continue to broaden out this year, as it did in November last year. Overall, the market has been narrow and driven by a handful of tech names. As liquidity improves, we expect the number of winners to increase and we see attractive entry points in multiple areas, especially consumer cyclicals that have structural stories.

Anu Narula is head of equities at Mirabaud Asset Management

One other thing I hate about January is it’s that time of year when many asset managers like to get out their proverbial crystal balls and try and make some predictions on what could happen over the coming 12 months. Indeed, I am putting pen to paper to write my own 2024 outlook.

Every year we get these predictions about what will happen in markets and the economy. And the problem is, while they can be great fun to read, one has to question whether they encourage the right behaviours. As the evidence demonstrates, making any type of point estimate of the future is likely to be incorrect. Demonstrating any strong conviction in an arbitrary short-term (12 month) future period feels artificial at best, and could lead to the erosion of value at worst if investor behaviour chases this prediction as truth.

For example, let’s journey back to 2023 when at the start of the year some 85% of economists said there would be a recession. Flash forward 12 months and guess what … we are still waiting. And no one is immune to this foible – one just has to remember Greenspan’s now infamous 2007 prediction of the Fed reaching double-digit rates. One year on, the Fed held rates at historical lows. This is nothing against economists by the way – I’m proud of my Economics degree from the University of Warwick.

Don’t get me wrong I do understand why outlooks exist; they are actually quite enjoyable and they can present a good opportunity to talk about the merits of an asset class, or a style of investing. The problem is that even the best are rarely spot on. And as for those that predict levels of different indices at year-end…don’t get me started.  The flip-side, however, is those that don’t show conviction, actually don’t say much at all.

So what’s the alternative? I think it is to have a range around a point estimate. What could this look like? The idea is that you define a plausible scenario, ‘X’, but also declare that probability of ‘X’ happening is ‘Y’ and the probability of it not happening is ‘Z’.

As an industry we hold inordinate conviction in our base case, when history teaches us it should be anything but. What I want the reader to understand is this: while an outlook may be brilliant and robust, the reality is that lots of things can happen over the year and the probability of anybody’s base case being a certainty, or coming to fruition, is really very low.

So this year when writing our own, I’m going to throw away the crystal ball and instead focus on the key principles of investing. For me the key ones are; be client-focused, remain diversified, understand where your active risks are being taken, and remain disciplined. These are the key principles for building any portfolio, the so-called Foundational Four.

Of course there needs to be a discussion of the key risks out there. Some are more elevated than in previous years, like the concentration conundrum in the US, cracks in the credit market and geo-political risks worldwide, which are definitely more elevated than last year. Of course, election risk is prevalent with 50% of the world going to the polls in 2024.

We need to think about these and how we navigate them. Because we know that risk is more elevated in certain areas, but also some risks are less elevated in certain areas, and our best chance of gaining conviction in our outlooks it to accept these risks are subject to shift through time in ways we cannot possibly foresee except on a probabilistic basis.

Clearly the key to investing is about balancing these risks but also articulating them to investors so they are aware of them. While a lot of time goes into writing outlooks, ultimately you have to take them with a bit of a pinch of salt.

So now that my rant is over, I had better crack on with finishing my 2024 outlook…

Justin Onuekwusi is chief investment officer at St James’s Place

In a commentary note, the fund rating firm’s client engagement manager Katie Sykes and MPS accounts manager Scott McNiven noted the conflicting signals in the global markets.

“2023 hasn’t quite been the disaster area expected when it comes to recession, but savings built up by households and businesses during the pandemic must be nearing depletion point by now,” they said.

“Government influence through spending and taxation is coming to an end and with the cost of living having skyrocketed over the last two years, refinancing needs are back with a vengeance in an environment of credit tightening.”

See also: What does 2024 hold in store for the wealth management industry?

The pair acknowledged the prevailing view is that interest rates have peaked as inflation is being brought under control, but the timing on rate cuts remains very uncertain.

The question of whether central banks will wait until damage from higher rates becomes ‘obvious’ or move early enough to avoid a recession is a crucial one.

“Europe is slowing down faster than the US and we’re already seeing signs of a recession,” they noted. “Will this direction of travel take hold, and will we see the same trend in the US in the coming months?”

“Wall Street seems convinced that a soft landing will be achieved, and a deep recession avoided, but economic growth will be slow as a result. No matter where you’re placing your bets, it’s all to play for in 2024 and the mood may shift at pace.”

Turning to equities, RSMR urged caution over the ‘Magnificent Seven’ US giants that dominated the stockmarket last year: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.

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“Coming into 2024, between them, they were worth more than the stock markets of the UK, Japan, France, China, and Canada combined,” they said.

“They now make up roughly 20% of the global stockmarket and last year their shares rose by around 70% on average, heavily contributing to stock market gains as a whole. If you had them in your portfolio last year, you were likely to be sitting pretty, but the outlook for 2024 may not be quite so marvellous.”

RSMR added that data from Refinitiv shows market shares of the Magnificent Seven fell by $316bn over the first two trading days of 2024.

“Given that they have many similar characteristics, one thing seems likely – if one falls, the domino effect will render them all much less magnificent,” they noted.

The firm pointed to emerging markets  as potential bright spot with companies expected to have higher earnings growth than the developed world in 2024.

“Divergencies exists of course and not all countries will profit to the same degree, but emerging markets equities should benefit from an improving growth premium and increasing exports, forging a brighter earnings outlook.”

China remains a concern, but there are some positive signs. “Investors have been concerned over slowing growth and high levels of debt and with investment in real estate in China floundering in recent years, there’s definite room for improvement,” the RSMR team said.

The firm also noted industries in China such as aviation, healthcare, renewable energy, and high-end manufacturing are showing ‘high growth potential’ and are open to foreign investment.

See also: Schroders launches multi-asset income fund

The AI theme is very much in play in China, with the direction of global AI governance and China’s role in the developing panorama being something to watch.

RSMR also said India has ‘gone from strength to strength’ in 2023 achieving 7-8% economic growth and prospects remain bright, supported by mainly domestic demand. By 2028, India’s economy is expected to be bigger than Germany and Japan, making it the third largest globally.