While the Nifty surpassed 21,000 for the first time this year, the BSE Sensex exceeded 71,000 levels. Both indexes recorded a gain of around 18% in CY23YTD. Additionally, the Nifty Midcap index and Smallcap index outperformed, registering gains of approximately 43% and 52%, respectively, during the same period. This exceptional performance reflects resilience in the face of various global and economic uncertainties.
Brokerage house Kotak Securities has come out with outlook for equities, gold and crude oil for the upcoming year. Let’s see what it predicts.
Equity
In the current market scenario, the brokerage believes large-cap stocks offer a better reward-risk balance. This preference is based on their more reasonable valuations compared to the lofty valuations observed in many mid-and small-cap stocks.
The brokerage also pointed out that over the past 6-12 months, investment stocks have shown robust returns, driven by expectations of a strong recovery in the domestic capital expenditure cycle. The narrative has been supported by substantial government capex in the first six months of FY24. However, two risks associated with this narrative are worth noting. First, there is a possibility of front-loading government capex in FY24. Second, the financing of capital expenditure through large fiscal deficits may not be sustainable, given the high fiscal deficit, it cautioned.
Given the rich valuations in the broader market, the brokerage advised investors to strategically add quality stocks with attractive valuations from a long-term investment perspective. This approach considers the correction as a chance to acquire fundamentally sound assets at more favorable prices.
The brokerage has a Nifty 2024 target of 21,834.
Gold
In 2023, COMEX Gold prices are set to conclude the year with a gain of over 11%, and MCX Gold prices have yielded an impressive return of nearly 12% year-to-date. As per Kotak, this performance is partly attributed to the depreciation of the domestic currency. Despite facing challenges such as surging bond yields and a robust US dollar, gold prices demonstrated resilience throughout the year, notably in the face of the Federal Reserve’s decision to raise interest rates to a 22-year high, stated the brokerage.
It also added that the steadfastness of the gold market can be attributed to robust central bank buying and a consistent demand for bars and coins, countering the impact of economic uncertainties.
In May 2023, MCX Gold prices reached an unprecedented high of ₹61,845 per 10 grams, and COMEX gold futures surged to $2,085.4 per troy ounce, falling just $4 short of the all-time high recorded during the COVID-19 pandemic. This surge was fueled by the US banking turmoil and a debt ceiling crisis, triggering heightened demand for safe-haven assets.
From May to September, gold prices experienced a gradual decline but they again began to ascend in October, signaling potential indications of a Federal Reserve pivot in 2024.
With mounting possibilities of Fed rate cuts in 2024, the outlook for gold appears even more promising. The hesitation of ETF investors and speculative buyers to actively participate thus far also presents a growing opportunity for price strength in the fourth quarter. The prevailing geopolitical environment, slowing global growth, and economic uncertainties will further enhance the appeal of gold as a safe-haven asset, predicted the brokerage.
Crude oil
As per Kotak, in 2023, WTI Crude Oil prices experienced a volatile journey resembling a roller coaster. After reaching a peak at $130.5 per barrel in March 2022, oil prices plummeted by over 40% due to robust Russian flows, a slowdown in Western countries, and a lackluster economic recovery in China, informed the brokerage. In May 2023, oil prices hit a 17-month low of $63.64 per barrel due to concerns of contagion from the failure of a US regional bank, coupled with troubles at Silicon Valley Bank and Credit Suisse Group AG, triggering a massive sell-off in crude oil futures, it added.
However, prices started increasing in late June, driven by OPEC+ output cuts tightening the physical oil markets. Then in October, it rose further following a Hamas attack on Israel, threatening Middle East tensions, noted Kotak. Nevertheless, prices declined in Q4 2023 due to the absence of supply disruptions from the war, increased non-OPEC supply, deteriorating demand prospects, and a seasonal lull in demand.
Anticipated slowdowns in supply growth in the upcoming year may prompt OPEC+ to make efforts to maintain the $80 per barrel floor, predicts Kotak. However, the decisive factors influencing prices will be how the demand scenarios unfold in the United States and China, warned the brokerage.
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 decision.
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Published: 20 Dec 2023, 01:13 PM IST