2024 is indeed going to be a crucial one. What are the big triggers that you are watching out for as well as given the kind of fantastic run that we have seen in 2023, do you believe it is going to continue for 2024 as well?
I think it will continue. Overall, the big trigger will be the Fed rate cut which should happen by March, April and we will have to see the magnitude of that so the big defining trend for this year will be rate cuts across the world.
2023 has been a great year and you also highlighted that rate cut is something that is the major trigger that one needs to be watching out for. Given almost a decade of data that I have for the large and the mid-end of the market performance whenever they have rallied this much like 40-50% returns the next year seems to be a bit muted for this particular space. Do you concur with this view and given the performance like almost double the return that we have seen in the broader end of the market compared to the large cap space do you believe that it is now the time to bet at the large cap space and any of the sectors that are on your radar?
Absolutely. I would agree with you. What will happen if there is a mean reversion that will come in and so a 40% on small and mid caps will not be followed by another 20% leave aside of 40%.
They will probably underperform the larger market so that is why we are cautioning that it might be a good idea to book some profit or be ready that it might take three years more to really get a good progress on the Nifty mid cap and small caps.
Large caps and quality names is where we should be focusing on. In terms of sectors I think banks are well positioned to fund the growth that is coming in the economy for multiple decades, which Rajesh was alluding to. I would say banks and financials broadly across mutual funds, insurance, the entire financial pack, they will outperform. Infra should continue with the new government in May and the budget in June.
You will see the focus on infra continuing and that should continue to give good returns. So infra, real estate, banking, the domestic cyclical part of the market is what we like. IT, maybe we still hold on and see how the global macro plays out. I think IT might disappoint for another six months or so and we can hold on for that.
When we talk about market movement that we have seen this year and going ahead, do you think it is going to be a strong case for cyclicals versus defensives or do you think defensives continue to hold on to those gains that they have seen this year? What is your view going ahead?
I think domestic cyclicals are what we can look at. So banking, auto and infra, given the kind of focus that this government has and private capex will follow up. So I think private capex will wait for the new government formation and then you could see a big surge coming in by mid-year and later part of the next calendar year.
So I think those could be some sectors. But domestic cyclicals is what I would look at. Metals, not yet because China is still a question mark. So the day we see a fiscal stimulus from China, some portion before that, sometime before that, metals will start moving. Metals are more an international cyclical story. So right now, I would stay away from metals more because of the Chinese slowdown.
Like my colleague just mentioned that the key themes for this year, the likes of railway and power and let me give you a few stocks as well, the likes of Titagarh Rail, Jupiter Wagons or REC, PFC in both of these segments respectively, all of them have logged gains of more than 200%. So, do you still see more legs to, let us say, the defence rally or the power rally or even the railway rally? And do you think these themes will continue to be the top performing themes next year as well?
I doubt it. You know, most of it is priced in and the valuations, if you see, are very high now. So, now will be the time, 2024 will be the time to see the performance. Of course, new orders when they come in, post the new government formation, that could lead to a second bit of rally. But the first half will be challenging for all these top players, be it railways, be it defence, indigenisation or the power sector rollout that we are seeing. Of course, on a five-year, ten-year basis, there is an order of magnitude change in all these companies, well-run companies in railways, defence or power. They will do very well on a five, ten-year basis but I think next six months will be a time of reckoning where performance will need to catch up. So, I would stay away from the top performers of this year and look elsewhere rather than sticking with them.