But after partying hard in the last couple of months, fatigue among bulls is likely to be seen entering into the New Year, shows various data indicators.
In 2023, the 50 stock index registered a staggering 20% gains, with nearly 14% gains coming in the last two months of the year.
In the backdrop of this and the key events lined up early next year, market participants expect some consolidation.
“2024 could be a year of lower returns as compared to 2023. This is because some of the tailwinds which caused this year’s outperformance (lower oil prices, easy domestic liquidity, certainty on political front) are likely to be missing next year,” said Niket Shah, fund manager at Motilal Oswal Asset Management.
Impacting Factors
The strong rally in equities in the last two months was backed by relentless inflows from foreign and domestic institutional investors.
Foreign portfolio investors net bought equities worth a whopping $6.9 billion in December, the highest monthly purchase in a month in 2023. In 2023, they pumped in nearly $24 billion into the domestic market.
The derivatives data further showed that FIIs significantly increased their net long positions in the January series.
“Such a pronounced bias (of FIIs) can introduce volatility and potential market unease, in my view,” said Abhilash Pagaria of Nuvama Quantitative Research.
Historical pattern of FII and DII flows in the month of January also shows volatility in investments.
In the last 12 years, FIIs were net sellers of shares in January during 5 instances, while DIIs sold in 6 instances.
While FIIs are entering the New Year with a bullish bias, there are certain key events that will influence their investment decision in January.
The third quarter earnings of companies will kickstart from the second week of January. Further, investors will also look at rejigging their portfolio ahead of the interim budget on February 1. A slew of macroeconomic data points, including inflation, industrial output, automobile sales, etc will also be out during the course of the month.
On the global front, the US Federal Reserve’s two-day monetary policy meeting will take place at the end of the month, and the decision will be announced on January 31.
All the above-mentioned factors are likely to bring in some volatility in equities and result in consolidation.
Historical Evidence
If one looks at the historical data, then January has been a month of weak returns for Dalal Street investors.
In the last 12 years, Nifty 50 has given negative returns in 7 instances in January. Infact, it has given negative returns for 5 years in a row between 2019 and 2023.
“Historically January has been a weak month in terms of return seasonality and, hence, going by the larger trend, we anticipate some profit booking in the latter half. Moreover, at the onset of Q3 FY24 earnings season, participants will look for cues,” said Sriram Velayudhan of IIFL Securities.
What should investors do?
Given that key events are lined up for the month, experts recommend adopting a stock-specific approach and switching bets to largecaps.
“We prefer increasing exposure to large-caps (over smallcap/micro-caps) and value stocks at reasonable prices away from growth stocks trading at steep valuations,” brokerage Sharekhan said.
In terms of sectors, the brokerage sees better times for pharma, two-wheeler automobiles, and IT services, in addition to its core multi-year investment themes of capex, capital and consumer.
(You can now subscribe to our ETMarkets WhatsApp channel)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
