After a roller coaster ride in 2023 with some notable gains, the stock market looks forward to a favourable FY 2024-25 Budget to keep the momentum going. It assumes importance as the country goes to the polls in a few months, and the markets are watchful of the outcome as it can have a powerful impact. Nidhi Sinha, editor of Outlook Money, reached out to Vijay Chandok, managing director and CEO of ICICI Securities, to understand what Sectors To Watch In 2024 for the stock market, where investors can find opportunities and where they need to tread cautiously.

Here are the edited excerpts:

Election Influence On The Markets

Generally, in the run-up to the elections, multiplier effects come into the economy as you find that government spending is quite robust. All that leads to consumption, which tends to be on the higher side. But this time around, we are coming on the back of a slightly inflationary environment. So, the consumption pattern is slightly different from what we have seen in the past. We are seeing a K-shaped recovery on demand. That is something that is expected to continue. Typically, it’s the fast-moving consumer goods (FMCG) sector, which gets impacted positively. This time, the auto sector is getting positively impacted, while FMCG is still flat. I think two-wheelers, rural consumption, and auto consumption are expected to show growth.

Other Big Sectors To Watch

One of the segments we are excited about is the transition to clean energy and renewables. Data sciences, data centres, application programming interface (APIs), those are interesting areas that are expected to see growth. Then some of the production-linked incentive (PLI) schemes are leading to growth in the electronics manufacturing sector, another new segment that is throwing up an opportunity. And let’s not forget the expenditure that the government is doing towards modernising railways and the defence sectors. Then there’s telecom. That’s also an area of continued growth given high consumption by young Indians. Finally, let’s not forget banking. That’s also an area which has got a lot of prospects for growth.

Also Read: Budget Expectations FY2024-25: What NPS Investors Should Watch Out For

Mid- And Small-Cap Rally In 2023

Small- and mid-caps have seen a great run in the last nine months to a year. Though questions have been raised about whether that is justified, if you really dissect it, you will find that it’s largely earnings related. So, it is fundamentally driven. The earnings have come because of margin improvement and that has happened because capacity utilisation is going up. We’ve also seen that most of the companies have got much better balance sheets, and debt levels are also low. Overall, it’s on the back of improved profit profile.

ESG Is Another Emerging Theme In India

More and more investors are integrating ESG frameworks into their investment and selection processes. Going forward, we will probably see more and more ESG-focused funds, which have already entered the market. I certainly think it’s going to be an important next story, though I wouldn’t single it out as the only big story.

Impact Of Global And Domestic Factors

Typically, when there is unrest globally, commodity and oil prices tend to spike. Fortunately, we are seeing that the impact of these factors, at least in the immediate term, is minimal, which is good for the economy. But one needs to keep watching the situation as it evolves and be cognisant of the fact that it could have an impact on the economy, and eventually the markets.

Trends That Investors Should Watch Out For

The biggest thing that people should watch out for is mistaking investing for trading. In fact, a recent report from the Securities and Exchange Board of India (Sebi) said that 90 per cent of the people who are trading in futures and options (F&Os) are ending up losing money. One should think of trading more as a tactical move. It’s best that you create your core portfolio in a more long-term asset allocation framework model and think of trading as something which is satellite to your own portfolio because there will be tactical opportunities arising later.

Read the full interview here.