Blogs from Capital Portfolio Advisors

As we bid farewell to 2023 and welcome 2024, it’s a time to reflect on the significant events that unfolded worldwide. While we’ve thankfully overcome the challenges of Covid, geopolitical tensions persist. The Russia-Ukraine war continues unabated, and towards the year’s end, heinous acts by Hamas in Israel prompted massive retaliatory attacks, resulting in tragic casualties. Unfortunately, common people bear the brunt while authorities remain in the safety of their offices or homes. India faces ongoing challenges from China on its borders, and global institutions like the UN seem increasingly ineffectual in resolving geopolitical issues. We hope there is no further aggravation and peace returns!

The battle against inflation appears to have achieved some success. Aggressive interest rate hikes, particularly in the developed world, have curbed inflation to some extent. Bond price movements suggest that interest rates may have peaked, at least for now. However, food inflation remains stubbornly high, influenced by geopolitics and climate factors, such as increased prices of sugar, coffee, rice, wheat, and corn among others. This inflation seems resistant to central bank measures.

Climate volatility poses a substantial challenge for global citizens, as droughts, famines, earthquakes, and tsunamis continue to impact various regions. The ongoing threat of global warming affecting agriculture and rainfall is underscored by recent natural disasters, such as the massive earthquake in Turkey and Japan.

The global economic growth narrative presents a mixed picture. The US economy performed well, while much of Europe struggled due to high interest rates and the Russia-Ukraine conflict. China faced internal challenges and witnessed a moderation in its growth rates. In 2024, the US economy may moderate, while China could see improvement, and the rest of Asia should continue to perform well.

India maintains its position as the fastest-growing major economy globally, thanks to a stable government, business-friendly policies, massive infrastructure development, and a focus on local manufacturing. Most sectors have flourished, except IT, FMCG, chemicals, and healthcare. Orderbook-based businesses have thrived due to infrastructure and manufacturing initiatives. Reduction in raw material prices in 2023 partially benefited the economy, and this trend is expected to continue in 2024. However, the high base of the previous year could moderate growth rates, except for sectors catering to defense and infrastructure. Public sector undertakings have made a commendable comeback, and the emphasis on renewable energy and electric vehicles creates attractive opportunities.

In the realm of global politics, several countries, including the US and India, are set to face elections, with potential far-reaching impacts on global economics and geopolitics. In India, state elections have reinforced the standing of the ruling party, instilling confidence in a possible continuity of the current government.

Financial markets in the developed world and India have performed well, reaching new highs. The participation of retail investors, especially in India, has been significant, leading to the outperformance of midcap and small-cap indices. Despite India’s strong credentials, foreign institutional investors (FIIs) hesitated to fully engage. Valuations, especially in mid and small caps, have become steep. A moderation in growth rates is anticipated due to a strong base. Consequently, markets might witness consolidation before gaining further strength. We may see bond markets competing strongly with equity markets, for performance.

In closing, we extend our heartfelt wishes for a peaceful, healthy, and happy 2024 to all our clients and readers.


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