Base case for Nifty50 by Dec 2024 is 23,000, says Pranav Haridasan of Axis Securities

Base case for Nifty50 by Dec 2024 is 23,000, says Pranav Haridasan of Axis Securities
Markets like consistency and predictability, which is why companies like HDFC Bank, TCS and Infosys have ruled the roost for decades now. The new year is going to be all about uncertainty – what with India headed for general elections and world’s central banks evaluating the direction of their rate cycles. In the midst of this uncertainty, Pranav Haridasan, MD & CEO of Axis Securities tells Malini Bhupta that he expects 14% CAGR growth in Nifty earnings over FY23-26. In its base case, Axis Securities foresees the December 2024 Nifty Target at 23,000. Edited Excerpts:

What is your view on the market as we head into 2024 after another turbulent year? The FPI holdings in India have hit a decadal low?

Determining the market direction based on FPI behaviour may not be prudent. Sometimes, relative valuations influence FPI behaviour, and India’s relatively high valuations last year could be a factor. We believe that both FDI and FPI flows into India are structurally strong. More so, the retail story and SIP numbers remain consistent, which reflects confidence in Indian markets. While FPIs may remain volatile in the short term, we believe India is a great investment story and will continue to see a steady stream of flow domestically and internationally over the long run.

High interest rates in the US have contributed to outflows. How do you expect the rate cycle to play out in India and the developed world in 2024?

A common assumption is that interest rates will reverse with a growth slowdown. However, we believe higher interest rates will be more persistent than expected, creating pressure on global equity allocation. While the consensus is that we will see cuts in a few quarters, we think rates are likely to stay elevated. In my opinion, we are currently reaping the benefits from our policy stance a few years ago. The effective management by the RBI and the government during COVID-19 added a layer of stability and confidence to the economy, which we are currently leveraging.

India’s weightage has gone up rather sharply on MSCI Indices in the last year even as China’s has come down. How can one interpret this?

This rise is a function of the overall market cap going up. Given our growth trajectory and demographics, our weightage will continue to increase in the long run.

Midcaps have had a great run this year. Do you think this is due to long term structural changes in the economy that will lead to higher growth for smaller companies or is it a cyclical thing?

The underlying structural factors are propelling this growth in mid-caps. In earning terms, there are some phenomenal stories in this space, yet not all companies fit that description. “Liquidity” should be a critical barometer when making allocation decisions. Though liquidity has improved considerably with increased participation, it is wise to be discerning. That said, we do see more long-term investments flowing into the mid and small-caps over the next few years.

Why are large caps struggling so much?

Looking at a long-term performance chart, we see that large caps typically catch up on the underperformance in subsequent years. The subdued performance of large caps can be due to the relatively lower flow from FPIs – especially in sectors such as financials. We think this trend could reverse quickly, and in the last few months, we have seen early signs of such a reversal. We are most excited about Banking and Manufacturing in the large-cap universe.

What is your target for the markets next year?

Next year will be eventful due to elections, and the rates cycle will be in focus. We are optimistic about the midcap story and believe the market will see about 15% upside. We firmly believe in India’s long-term growth story, supported by the emerging favourable structure, as increasing capital expenditure enables banks to improve credit growth. These factors will ensure that Indian equities deliver double-digit returns in the next 2-3 years with the support of double-digit earnings growth. We anticipate 14% CAGR growth in Nifty earnings over FY23-26. In our base case, we foresee the December 2024 Nifty Target at 23,000.

The RBI has increased its growth forecast for India in its latest policy announcements?

RBI surprised the market with a 50 bps upgrade to earlier GDP growth estimates. We think it is due to structural reasons on the back of strong support from the government and better balance sheets of Indian corporations and banks. We may see more such upgrades in the coming quarters. Hopefully, with the supply-side constraints easing, this strong growth should not be inflationary.

What kind of sectors do you expect would perform well in 2024?

We are bullish on domestic consumption and infrastructure. Consumer staples, ignored for a while, should start picking up, with hopefully spending picking up in Tier 2/3 cities. Another play from a macro perspective is financials, as mentioned earlier.

Do you expect real estate stocks to perform given that demand remains strong through 2023?

We continue to like real estate. We tend to look at the outperformance in the last couple of years, but from 2010 to 2020, the sector did little, and hence, we think the catch-up trade is definitely not over.

India’s power story is another theme that has done well. Do you expect this power story to continue to play out in 2024?

Our country is on the cusp of a new cycle in the power sector, likely to last at least for the next 3 to 5 years. Revival in thermal capex, expansion in renewable energy capacities, and revival in the transmission capex will create substantial opportunities. We have seen the YoY growth in the power demand, and the rising demand will continue to be the driving force for the sector. Power demand will continue to rise in upcoming years with more push from manufacturing and capex activities. Investors can engage in this theme through power generation, transmission, and financing companies.

How do you expect gold to perform in 2024?

A few years ago, when alternate currencies were gaining attention, everyone wondered if gold would have the sheen. However, gold remains a haven during volatile times and should be an integral component of an investor’s portfolio. Investors now have products like digital gold and sovereign gold bonds, making investments easier. While it may not be an alpha-generating play, gold is crucial for portfolio diversification.

How can retail investors look at fixed income investments as part of asset allocation strategy?

Regulatory changes have reduced the ticket size, making investments in fixed-income instruments more accessible and democratic for small investors. However, we think there is still a need to drive investor education here and demystify the rate and credit risk in a simplified manner.