Market Outlook: From policy implications to earnings, key trends to watch out for in second half of 2024

Indian stock market benchmarks—Sensex and Nifty 50—achieved remarkable gains in the first half of 2024. The Nifty 50 surged by 10.5 percent, reaching a record high of 24,174, while the Sensex climbed by 9.4 percent, peaking at an all-time high of 79,671.58. Despite substantial volatility driven by domestic and global factors, these milestones highlight the market's resilience and investor optimism amid challenging conditions.

Going ahead, market experts expect the bullish momentum to continue. The second half of FY25 presents a dynamic and multifaceted investment environment influenced by a blend of domestic and global factors.

Experts emphasise the importance of monitoring fiscal policies, inflation trends, and government reforms, as well as the impact of the monsoon season and international economic conditions. With significant events such as the Union Budget, state elections, and potential shifts in US Federal Reserve policies, investors should remain vigilant and adaptive to navigate the evolving market landscape. The collective insights suggest a cautious yet optimistic outlook, with opportunities across various sectors, including FMCG, private banking, renewable energy, and infrastructure. As always, a well-informed and strategic approach will be key to capitalising on the market's potential in H2 FY25. 

As we enter the second half of FY25, market experts have identified key macroeconomic trends and sectoral developments that are expected to shape the investment landscape. Let's delve into insights from prominent financial analysts and fund managers on what investors should watch for in the coming months.

Macroeconomic Trends to Watch Out For

Hemant Kanawala, Senior Executive Vice President – Investment, Kotak Mahindra Life Insurance, highlights several critical macroeconomic trends. Fiscal consolidation efforts, inflation rates, monetary policy decisions, and government policies on economic reforms versus populist measures will significantly influence economic stability and growth prospects. Additionally, the progress of the monsoon season and the policies of the US Federal Reserve are vital factors that will shape investment sentiment.

Aditya Khemka, Fund Manager at Incred AMC, highlights recovery in urban and rural consumption as key trends to watch out for. He expects food inflation to pick up in the near term, with the budget likely providing relief to the poor through measures like loan waivers and direct benefit transfers.

Budget and Policy Implications

Diwakar Rana, Fund Manager PMS at Prudent Equity, underscores the importance of the upcoming budget. The government released a decent interim budget before the elections, and investors are now eagerly waiting to see if this continuity will stay. The budget will set the direction for government priorities, impacting various sectors and potentially driving market movements.

Sumit Jain, Deputy CIO at ASK Investment Managers, also emphasises the significance of the Union Budget. He further expects it to outline government priorities and believes an above-normal monsoon could ease food inflation pressures, providing some room for monetary policy adjustments. Consequently, private consumption is anticipated to accelerate in FY25, contributing to broad-based growth.

Sectoral Insights and Market Dynamics

Sonam Srivastava, Founder and Fund Manager at Wright Research, identifies several key trends for H2 FY25. The monetary policy stance of the US Federal Reserve and the Reserve Bank of India (RBI) will be closely watched, as interest rate decisions can significantly impact market sentiment. The Indian budget, set to be announced in July, could lead to sector rotation, with corporate earnings growth remaining a crucial factor. Srivastava expects strong performance from the FMCG sector and private banks, with the energy transition theme also gaining traction. Geopolitical tensions and the performance of other global markets will also influence the Indian market.

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, expects an eventful H2 CY24. Key events include the onset of the monsoon, the Union Budget, state elections in various states, and the US elections. These factors could introduce volatility and impact sectors like FMCG, rural-focused stocks, and consumption-related stocks. The US Federal Reserve’s decisions on interest rate cuts will also be crucial. Markets began the year with an expectation of five rate cuts by the US Fed Reserve in 2024 which dropped to three and now chances of even one rate cut look slim. Thus, all of these are known events which markets would look out for in H2CY24, Sheth added.

Corporate Earnings and Market Performance

Hemang Kapasi, Head of Equities at Sanctum Wealth, notes that with the general election outcome behind us, the focus shifts to corporate earnings. FY24 ended with stellar numbers across most sectors, except IT and staples. BSE500 earnings growth of 30% was aided by margin expansion and growth in operating and free cash flow ahead of volume growth. The key trend to watch is whether volume growth can take center stage, as margin tailwinds are exhausted. Without meaningful topline growth, the current year’s PAT growth would look subdued. From a policy perspective, addressing rural distress could also shift government priorities from capex allocation to rural allocation.

Ravi Singh, SVP of Retail Research at Religare Broking, believes that despite recent strength, the market tone is likely to remain positive but advises caution against being overly bullish. Some profit-taking could occur after the recent surge in indices.

Growth Opportunities in Key Sectors

Trivesh D, COO at Tradejini, points to strong growth prospects in infrastructure, railways, renewable energy, and IT. Renewable energy investments are poised to surge, buoyed by global sustainability initiatives. Thematic investments focusing on sectors aligned with long-term structural changes are gaining momentum. Government support is expected to bolster infrastructure and railways, driving further expansion. The strong performance of the Nifty 50 in the first half of 2024 underscores a positive outlook for the remainder of the fiscal year.

From fiscal policies and inflation rates to government reforms and global economic influences, these factors will play a crucial role in determining economic stability, growth prospects, and investment sentiment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.