“The future is always uncertain. But if you are in India, there is every reason to believe that the fresh year belongs to India, this decade characterizes our country, and this century has its place cut out for our motherland”- Robin Banerjee, a seasoned finance expert.
As you read this piece at the threshold of 2024, things in India look rather optimistic – stock markets are flying high, and GDP is growing the fastest among the large economies. However, the rest of the world is going through some very turbulent times – major ongoing wars, GDP growth tottering, and inflationary situations troubling most economies.
As we enter another fresh year, the paramount question in our minds is – what does 2024 hold for us? Given the present known in the unknown future, let me try to answer.
WHAT 2024 HOLDS FOR US
Will loan availability become easier? Yes.
The Indian banking sector is in good shape. Much more ready to fund than it has been in the recent past. Indian banks’ weak loans (NPAs) are down to a 10-year low of 4.5% this year and are projected to drop to 3.5% next year. This strengthens banks’ balance sheets, enabling them to lend more.
The RBI’s recent move requiring financial institutions to allocate more capital against unsecured consumer credit loans is a good signal to tighten whenever things look risky. More such steps will be seen whenever the RBI feels the banking system is taking undue risks. In addition, specialized banking players and fintechs are prompting improvement in the availability and servicing of funding.
Enough money is available if you have a good project and have shown good past behaviour.
Will interest rates come down? Yes.
You may expect a reduction of interest rates in India in slabs. With inflation under control, it is reasonable to expect that interest rates will be down by about 0.75% to 1.25% by the calendar year end, with the midyear reduction of about 0.5%. The US interest rates are likely to reverse, too, as it seems it has reached its peak.
Will inflation rise in 2024?
This would incidentally mean that the bank interest rates (when you are a depositor) may also fall. Hence, it could be a good idea to lock some of your savings in fixed deposits at current rates for at least one year, if not more.
Will inflation rise? No.
India’s retail inflation, which is measured by the consumer price index (CPI), which analyses the retail inflation of goods and services in the economy across 260 commodities, was at 5.6% in November 2023. For your information, in the last two years, CPI hit the highest of 7.8% in April 2022 and the lowest of 4.1% in Jan. 2021. It is expected that inflation will hold at around 5.5%-6.0% in 2024.
In this assumption, a major factor will be the monsoon in India. We have had a fairly good monsoon for the past eight years. The calculations could go haywire if El Nino or climate change affects us.
Will the Stock Market keep rising? Yes.
The Indian economy and its companies are galloping. As you read this piece, the BSE index is around 72,500, and the Nifty is around 21,500. You may expect a 10% rise from this level by the year’s end. BSE index by December 2024 is expected to be around 78,000 – 80,000, and Nifty around 23,000 to 24,000. Technology stocks will be an added flavour for 2024.
Please note that stocks will keep oscillating but with an upward bias.
Just for your information, the BSE index has risen nine times in the last ten years. This makes the Indian stocks one of the most expensive at an average P/E multiple of 23, with the USA multiple at 22.
Given that India would be the island of growth in the world in the short and medium term (with China slowing down on its track), global investors will necessarily have to chase Indian stocks. This is in addition to the Indians continuing to pour their savings through SIP mode, which they love.
Will the Indian rupee weaken a lot? No.
When comparing the Indian rupee with the US dollar, tracking the USD performance is paramount. If the US dollar weakens, then the rupee will strengthen. The US Central Bank is giving enough hints that they will cut interest rates in 2024 by 0.75%. If this happens (which is very likely), investors will allocate less to USD holdings and divert funds to Indian markets, strengthening the INR.
In addition, with the Indian economy doing well, many overseas investors will chase the Indian equity and debt markets. This will again lead to the relative strengthening of the rupee. In addition, RBI’s occasional interventions will continue, with their unstated intent of depreciating the rupee by at least 3% to 5% every year to keep Indian exports competitive in the global market.
Considering the scenario, the rupee, which is around 83 for one USD as you read this piece, will likely be between 85 and 87 by the year’s end.
Will crude oil prices rise? No.
Looking at Brent crude (considered the major global benchmark for oil), its price fluctuated during 2023 from $93 to its lowest of $71 per barrel. As of now, it is hovering around $80. The demand will remain weak in the likely global scenario, with China’s ongoing slump, the European economy struggling, and higher electric vehicle adoption. However, oil supplies will keep flowing with US production booming, Iran and Brazil pumping out more, offsetting the OPEC production cuts and Russian supply reduction.
Given this background, crude prices will likely range between $75 and $85 per barrel. Goldman Sachs predicts an average of $81 in 2024, and S&P Global estimates $85. In essence, no significant crude price rise is expected in 2024.
While India’s story looks upbeat in the face of global uncertainties, the projections for 2024 are beset with certain risks.
RISKS
While India’s story looks upbeat in the face of global uncertainties, the projections for 2024 are beset with certain risks. The main ones are:
Global warming
Bad weather incidences, leading to famine or floods, can make every forecast useless; Terror attacks: A few mad guys can turn the world topsy-turvy;
Big frauds, defaults
Corporate India looks sound as of now. But any big fraud news or bank defaults could result in a somersault in the positive sentiments;
China at war
The Chinese Premiere’s mind is complex to conjecture. However illogical it could look, an attack possibility on its neighbors cannot be eliminated. This could be highly destabilizing.
Political instability
In 2024, more than half the world’s population will be up for democratic process – 70 countries with over 4 billion people. We know fully well that many will neither be free nor fair.
FEW LAST WORDS
It is the past and the present that help us to plan for the future. This is what I have attempted.
The future is always uncertain. But if you are in India, there is every reason to believe that the fresh year belongs to India, this decade characterizes our country, and this century has its place cut out for our motherland.
Now, enjoy the journey, which would, of course, have potholes and craters to navigate.
About the Author: Robin Banerjee is the Chairman of Nucleon Research Pvt Ltd, a global clinical research company. Earlier, he served as the Managing Director of Caprihans India Ltd. Robin has authored 3 bestselling business nonfiction books: (i) Who Cheats and How; (ii) Who Blunders and How; and (iii) Corporate Frauds: Bigger, Broader, Bolder.
Source: Economic Times (ETCFO.com)
