2023 Santa Claus rally to continue amid economic boom, global optimism

As 2023 comes to end, market participants are expecting the continuation of the Santa Claus Rally, which has proven rewarding for investors. The Sensex and Nifty have generously rewarded investors, with the Sensex surging 18.2 per cent and the Nifty 50 index scaled new record high with a surge of 19.26 per cent.

India's equity market has stood out in the emerging markets arena, fuelled by its status as the world's fastest-growing major economy and a recipient of strong foreign inflows. The robust performance is attributed to strong corporate earnings and significant increase in government capital expenditure on infrastructure projects.

Strong FII flows

Foreign institutional investors have injected Rs 1,62,285 crore into the market this year, marking it as the best year for foreign flows since 2020. The resilience of the Indian market is further exemplified by a record-breaking 110 initial public offerings (IPOs) in 2023.

The first half of the fiscal year 2024 saw a commendable GDP growth of 7.7 per cent, propelled by robust figures in manufacturing and investment sectors. The Reserve Bank of India (RBI) responded by revising its GDP forecast upwards to 7 per cent for current financial year. Optimistic growth projections for FY25, averaging 6.5 per cent in the first three quarters, contribute to a bullish sentiment in the market.

The recent electoral victories of the BJP in Rajasthan, Madhya Pradesh and Chhattisgarh have bolstered investor confidence in political continuity post the 2024 Lok Sabha elections. Coupled with healthy corporate earnings and resilient domestic macros, this political stability is expected to further strengthen sentiments.

Global firms have upgraded India's rating and GDP growth forecast, propelling BSE-listed companies' market capitalization to surpass the all-time high of $4 trillion. NSE has surpassed the Hong Kong stock exchange, securing the position of the world's seventh largest exchange by market cap.

Favourable global factors, including a perceived peak in interest rates and a decline in bond yields and the dollar index, contribute to the positive domestic cues. The US Federal Reserve's hint at three rate cuts in 2024 has ignited global optimism, with other central banks likely to follow suit.

Despite occasional volatility due to geopolitical tensions and recent events like the Suez Canal route attack impacting oil prices, India's macro and micro fundamentals remain robust. 

Robust IPO market

The IPO market, mirroring the bullish trend in the secondary market, has been vibrant with IPOs raising funds worth Rs 48,000 crore.

Looking ahead, the pipeline remains strong, with expectations of a surge in new-age tech IPOs, including Ola Electric, Swiggy, FirstCry and Mobiwik.

Nifty has delivered an 18 per cent return in 2023 so far, and despite this upswing, it trades at a 12-month forward price to earnings ratio of  19 times, a discount to its 10-year average of 20 times, analysts at brokerage firm Motilal Oswal said.

The rally extended beyond large caps, with Nifty Midcap100 surging 44 per cent and Nifty Smallcap100 witnessing a remarkable 54 per cent gain. Sectors such as PSUs, realty, auto, power, defence, shipping and fertiliser garnered substantial buying interest. PSU Banks outperformed private banks, positioned for sustainable 1 per cent return on assets (RoA) and potential earnings upgrades, Motilal Oswal added.