Mother of all bull runs coming up in 2024?

Dear Investor,

With investments, as with life, regret is the one of the most painful emotions to digest and live with. Lets look back at the worst market crashes of our time: The Great Recession of 2008. The Sensex went into a free fall from circa 21,000 levels to about 7000 levels within a matter of months. Immediately next year in 2009, the Sensex was back at around 20,000 levels aided by massive financial stimuli provided globally as well as domestically. For an investor who invested and lost capital in the 2008 crash, the real regret was not losing capital but not having averaged out his investments when the markets gave him the opportunity to do so. Similar regrets have been faced by investors in every market crash, including the 2020 crash driven by the Covid uncertainties. Unlike life, markets do give us a second chance, a third and a fourth one as well. Unfortunately, most fail to grab these chances and continue down the path of mediocre to negative returns. They end up blaming everyone else apart from themselves for losing money in the markets. Changing financial advisors and stock brokers also doesn't help as the fault really lies within. We need to change our outlook towards market corrections and see them as opportunities and not crises.

So lets begin with why I feel that we are on the cusp of one of the greatest stock market rallies we may witness in our lifetimes. Some of it your news channels, MF distributors and stock brokers might have already highlighted so I'll try to keep it precise:

1. India Shining: Extremely cliched but factual statement. Be it demographics, China+1 narrative, infrastructure development or pure luck of being in the right place at the right time, the Indian economy is booming with all engines blazing. Don't believe me, just look around. Look at the general optimism and buoyancy in the people around you. Look how many content creators have come up on social media not just from the metros but more so from rural India. Look at the waiting periods for cars. Look at flight bookings. Look at hotel room tariffs and occupancy rates. Look at the number of Swiggy, Zomato, Flipkart and Amazon riders you see on the road today. Look at how many electric vehicles we see on the road today. Look by how much intercity travel times by train and by road have come down. Look at the way how foreign investors perceive India today. Look at how India pays and transacts through UPI apps like GPay, PhonePe, etc. Again, don't believe me, just make a vendor payment through UPI in front of an NRI or a foreign national and see the shock and surprise on their faces. This technology doesn't exist anywhere in the world apart from India. Be proud. Participate in what is to come next. Irrespective of your political views and affiliations. Remember, India shines not because of its politicians but despite them. 

2. Interest rates: Inflation looks to have peaked out and is on a downward glide path. We have already seen the RBI put a pause on the interest rate hike in their last meeting. Driven by lower inflation data going forward, we might as well see rate cuts coming in not just by the RBI but central bankers globally. Just to give you an analysis, the US 10 year bond yield peaked at around 4.20% last year. Since then it is trading at around 3.50% levels today. Likewise, the Indian 10 year bond yield peaked at 7.61% and is now trading at 7.10% levels. Such large moves in yields are not temporary reliefs in an upward trajectory, these are decisive trend reversals and it's a matter of time that we see yields dropping significantly from current levels. If you believe in this narrative, book the longest term FD's you can, buy the longest term bonds you can and invest in the longest average maturity debt mutual funds you can. You may not get these rates again in the near future at least. Also, going by simple Macroeconomics 101, lower interest rates mean higher GDP growth and higher GDP growth means higher stock markets. So the time to go shopping for stocks and indices at steep discounts is NOW!

3. Deficits: If you study any financial crisis, in any economy in the past, you will see that there has almost always been one common alarm bell that has gone off before the crisis began: high current account deficit (CAD). India's current account deficit today stands at a very manageable 2.2% of GDP and is on a downward trajectory. We all know that oil and gold are some of our biggest import items. With gold prices softening as economies come out of crises and also ethanol blending being on the rise, there is a good chance for our CAD to be even lower, or we may even close a few quarters with a current account surplus. This keeps our currency stable, inflation under check and gives the RBI good elbow room to cut rates to support growth if so required. The fiscal deficit too is on a downward trajectory. It currently stands at 6.4% of GDP after touching a high of 9.3% in FY21 due to expenses related to the pandemic. The target is to bring it down to 5.9% by the end of FY24 and to 4.5% by FY26. 

4. Time correction: The Sensex touched a high of around 62,000 in the month of October 2021. Today, after almost three years, we are still at 61,000 levels on the Sensex. This is what we call in finance as a classic "Time Correction". It is a type of market correction where the markets do not correct in terms of price but remain stagnant over an extended period of time, automatically bringing down the per annum returns and with them, the morales of equity investors. These are times when per annum returns from mutual funds fall to single digits, investors start comparing mutual funds returns to that of FD's and wonder why they are taking that extra risk. These are also times post which we have seen massive stock market rallies. The kind that shift the base of the index 40-50% higher. All it takes is a trigger. Don't believe me? Take a look at the Sensex from September 2010 to April 2014. It remained hovering at and around the 20,000 level mark. There was a trigger in May 2014 and by March 2015, the base had moved 50% higher to 30,000 levels. 20,000 levels on the Sensex were never seen since then. What was that trigger? General Elections 2014.

5. General Elections 2024: If there is one risk that foreign institutional investors hate taking the most, it is "event risk". They do not like to park their clients' funds, especially in emerging market economies and benchmark their returns contingent to the outcome of a big event. So before every big event, we see FII funds "staying on the sidelines". Once the outcome of the event is out and it is in favour of the markets, we see massive FII inflows coming in. India's General Elections are slated to be held in April to May next year. I do not see big FII long positions being built into our equity markets before that. However, if we get a stable Government at the centre and by then if the US Fed is also on a rate cutting spree, unimaginable amount of inflows can come into our markets, shifting our base 40-50% higher. A few years hence, we may look back at 2024 and say "60,000 levels on the Sensex were never seen since then".

So is it all hunky dory then? Are there no risks to this narrative? Well, I wish. As I write this, the war in Ukraine, the trigger that started this inflation crisis, is still not over. The Nord Stream gas pipelines are still not operational. We now have an armed military conflict in Sudan. Economies of Sri Lanka and Pakistan are in crises. We are yet to see how geographically expansionist China becomes and what roles nations like the US, Russia and Japan play in it. Populations of the so called developed economies are ageing. Debt to GDP levels of these economies are at all time highs and rising. Will we see a new world economic order emerge after this crisis? Will we see a new reserve currency emerge? Would it be pegged to gold? Would it be a cryptocurrency? What role would AI play in economic growth and cyber warfare? There are questions that still remain unanswered. However, think about it, what would life be without uncertainties? All we can do is learn from the past, act in the present and invest for the future!

Happy Investing!


Ruhshaad Daroga