The month of December brings in the festive cheer with beautifully baked cakes, wine, friends and family. Also, from a market perspective, the month of December 2023 remained a good one for Indian equities as the upwards trajectory continued, building a positive momentum. Multiple factors continue to work in India’s favor as we enter into 2024. Global macroeconomics, central bank policies, domestic consumption, favorable weather conditions, growing landscape of start-up’s, fast paced digitalization, consistent FPI/FDI flows and an unprecedented growth of the overall investor base.

On the global front too, India has been leading the mantle when it comes to the performance of the equity markets and this can be seen from the index returns for 2023.

Source: Advisor Perspectives

All the Nifty sectoral indices also ended the year in green with sectors like Realty, PSE, SmallCap and MidCap indices posting returns over 50% during the year.

On a month-on-month as of December 2023 too, Nifty indices outperformed significantly with the Realty sector leading the mantle. The chart below depicts the returns across sectoral indices for the past month.

 Source: Trade Brains

Sectoral indices continue to touch new highs on account of consistent foreign inflows, however some sectors like Small and Mid-Cap remain overvalued. For instance the Nifty Small cap index is trading at a significant premium of about 26% to its historical average. While Midcaps too continue to trade at a relatively higher PE of 12% premium, large caps are trading at around 18% PE which is close to their historical averages. While small and mid-cap stocks continue to have some juice left in them, the cycle could turn over the next quarter or so, in favor of large caps.

India also topped the list in terms of the number if IPO’s across the world during the year 2023, with a significant number of IPO’s being listed during the third quarter. While we have witnessed some large names like Mankind Pharma, Tata Technologies and JSW Infrastructure getting listed on the bourses, there have also been around 179 SME names that raised public money in 2023, a category where we have witnessed some instances of valuations coming in at irrational levels. It is heartening; to witness the number of government recognized start-up’s and their significant growth over the years. The sharp rise in the number of start-up’s has led to India becoming the third largest start-up ecosystem in the world. The chart below gives us some insight into the growth of start-up’s in India over the years.

Source: DPIIT

The slowdown in China has been another factor that has likely favored India, especially as China witnessed FDI outflows for the first time since 1998 during the quarter July -September 2023. India on the other hand has been witnessing a net inflow into mutual funds for the past 2 months. While higher debt to GDP levels of around 97% are a bit of a concern, the higher rate of growth and the fast paced digitalization leads to a more stable economy.

Overall, we think that the Indian growth story is one that’s likely to continue for over a decade. Despite short term risks and market volatility, the markets have been witnessing an upwards trajectory that is on a continuing trend over the long term. At Capricorne Mindframe, we think that it’s important to find value and invest over the long term to generate alpha. In line with this thought process, we have positioned our strategies to take advantage of the market movements across time periods.