Chief Economist at the National Stock Exchange of India
It isn’t the first time we write this, but the year 2024 has been eventful in more ways than one, spanning across geographical, economic, climatic and political realms. In a year when a significant chunk of humanity chose their leaders, Donald Trump’s re-election as the US President in a down-to-the-wire contest has forced a refresh of the economic and geopolitical calculus across the world. His proposed tax cuts, trade-protectionist, America-first policies have pushed US isolationism upon an increasingly fragmented world, with implications for the rest of the world, including India. A world used to US demand would be forced to reckon with spillovers of a stronger dollar, more competition, higher import duties and new strategic alignments.
For the US, this has also meant tapered rate cut expectations next year with the Federal Reserve’s dot plot now guiding for 50bps cut in 2025 after a total of 100bps that we saw this year. There are also other factors at play for the US economy and markets such as the rising importance of unelected persons of interest and of digital assets. The two hot wars of last year continue; the Middle East saw the decades-old Assad regime fall in a matter of weeks, with Turkey and Israel gaining significantly in the balance of power. The Russia-Ukraine conflict has now seen entry of North Korean troops, apart from the indirect participation of multiple countries on each side. Geopolitical uncertainty has contributed to commodity price volatility, but lower than in previous years, as demand pressures have kept prices in check.
Back home, the 2024 General Elections secured a third consecutive term for Shri Narendra Modi, making him only the second Prime Minister in the country’s history since Independence to achieve this feat. Economic growth remained strong for most of the year before surprising on the downside in the later part with a weak Q2 GDP print and subdued corporate profitability. Nevertheless, India remains the fastest growing large economy in the world. An inflation spike, however, kept the RBI’s MPC on hold; it remains to be seen how the reconstituted MPC will decide going forward. For detailed coverage on the macro scene, please refer to our Macro Round-up section. For domestic capital markets, the year saw several crucial developments, ranging from modifications in capital gains taxes to tightening of F&O norms to massive FPI selling in the later part of the year, and of course, the IPO boom. The year 2024 saw record-high capital raising through IPOs, with Rs 1.4 lakh crore raised till November 2024, with India leading the world in number of issuances (241 during Jan-Nov’24). Retail interest in the markets led to significant milestones being crossed. The number of unique investors passed the nine crore mark in February, 10 crore in August and currently stands at 10.85 crore. The number of accounts through these investors trade (UCCs) is nearly 21 crore.
Global equities had a strong run this year, albeit with notable divergences across markets. Developed market equities, as represented by the MSCI World Index (which includes stocks from 23 developed markets), posted a robust 16.6% gain year-to-date (as of December 19th, 2024), largely driven by a strong rally in US equities (S&P 500: +23%). In contrast, European and UK markets recorded more modest mid-single-digit gains. Emerging markets, represented by the MSCI EM Index (which tracks stocks from 24 emerging economies), underperformed with a return of 5.7% yearto-date, as the strengthening US dollar, trade policy uncertainties, and growth concerns in China dampened investor sentiment. Meanwhile, global debt markets have experienced significant volatility and are poised to close the year in the red, reflecting the impact of shifting policy expectations.
Indian markets, while outperforming the broader emerging market pack, had a roller coaster ride this year. After rising to fresh record high levels in late-September, the Nifty 50 Index witnessed an 11% correction in little over a month, even as the year-to-date gain remains decent at 10.2% (As of December 19th, 2024). Emerging signs of economic slowdown, heavy FPI selling and stretched valuations triggered a sell-off in Indian equities over the last few months.
Our Story of the month looks at second-quarter earnings. Topline growth for Nifty 50 and Nifty 500 companies moderated to a 15-quarter low of 6.6% and a three-quarter low of 8.3% YoY, respectively. Mid- and small-cap companies (Nifty 500 ex-Nifty 50) performed better with a robust 9.8% YoY growth in net sales, the highest in six quarters. Financials drove over 50% of topline growth, supported by strong credit offtake, while Consumer Discretionary contributed 27.5%, led by consumer durables and apparel. In contrast, Materials and Energy faced a weak quarter due to softer demand, lower realizations, and weaker refining margins. Industrials showed resilience, benefitting from a pick-up in government spending post-election. Rising costs pressured profitability, as operating profit (EBITDA) for Nifty 50/Nifty 500 (ex-Financials) contracted 0.5%/4.1% YoY and 1.7%/4% QoQ. Adjusted PAT growth fell to an eight-quarter low of 0.8% YoY for Nifty 50 and -4.1% YoY for Nifty 500. The Nifty 500 ex-Nifty 50 universe underperformed on profitability with -10.1% YoY, despite stronger revenue growth. Our Chart of the month takes a deeper look at how India’s merchandise trade composition and partnerships have evolved over the years.
A weak second quarter resulted in downward revisions in earnings estimates across the board, and starkly so in commodity-oriented sectors including Energy and Materials. Earnings estimate for FY26 was also curtailed by 2.9% during this period, even as the revisions were relatively more broad-based across sectors, leading to a steep fall in the Earnings Revision Indicator (ERI) as well. Notwithstanding a disappointing performance in the second quarter, corporate profitability over the coming quarters should see an improvement, thanks to higher Government spending, festive-led boost to urban consumption and continued recovery in rural demand. Escalation in geopolitical tensions, and consequent surge in commodity price volatility, coupled with weather-related disruptions, pose key downside risks. By the way, 2024 is on track to be the hottest year on record!
Towards the end as usual, any take on the year is complete without an account of the technology frontier that gets better by the day. We now have an LLM that can do advanced math, quantum computing that promises to become mainstream soon, leading to commercial viability. These changes are likely to change our lives in ways that would be difficult to fathom in the short term but would have long-term consequences.