. A recent report suggests that the Nifty 50 is poised to deliver a 16% earnings growth in 2024-25. Additionally, the small cap is expected to outperform. Let’s delve deeper into the details.
The Backdrop
The report, sourced from Livemint, suggests a promising outlook for the Nifty 50 and small cap sectors. Despite recent declines, where small caps have shown no returns in the last 90 days and mid caps have experienced corrections, their performance over the past 12 months still surpasses that of large caps, with returns exceeding 50%.
The Nifty 50: A Closer Look
The Nifty 50, despite some recent downturns, has been a reliable performer. The index is expected to deliver a 16% earnings growth by 2024-25, showing a strong potential for future growth. This news comes at a time when investors are looking for solid investment opportunities in the volatile market.
The Rise of Small Cap
Small cap stocks, often overshadowed by their large cap counterparts, are predicted to outperform in the coming years. These stocks have shown resilience despite recent corrections and are expected to deliver strong returns.
The Market Scenario
The market capitalization of NSE-listed companies surpassed $4 trillion in December 2023. The benchmark Nifty 50 and MSCI India indices delivered 16% year-to-date (YTD) returns, outperforming MSCI indices of China, Brazil, the UK, and Europe, which ranged from -15% to 12.3%.
The Driving Factors
These positive trends can be attributed to several factors:
The strength of the Indian economy, evidenced by the above-expectation 7.6% GDP growth in the second quarter of 2023.
Healthy leading indicators, including power demand, housing demand, and credit growth.
Stable interest rates and declining political uncertainty regarding the 2024 general elections. The expected volatility in inflation and impact on exports due to likely underperformance in advanced economies is anticipated to lead to a minor slowdown in 2024.
The Outlook for 2024
Analysts expect reasonable earnings growth, supported by continuing capital expenditure (capex) programs of corporate India. Despite the Nifty 50 and small cap sectors’ impressive performance, caution is advised as valuations are not cheap. Investors are encouraged to remain disciplined, gradually increasing their exposure to large-cap stocks and avoiding too much exposure to penny stocks.
Sector Spotlight
Looking at the sector outlook, auto ancillaries, metals, defense, textiles, capital goods, utilities, logistics, and BFSI are expected to perform better in the future. In segments, mid caps are expected to outperform large caps.
Stocks to Watch
In the backdrop of buoyant optimism and strong domestic growth, companies such as Samvardhana Motherson International, Prince Pipes and Fittings, Kalyan Jewellers, Orient Electric, Equitas Small Finance Bank, Star Health and Allied Insurance, Ashok Leyland, Just Dial, and Triveni Turbine are expected to shine. Their earnings are predicted to double by 2025-26.
As the report suggests, the future of the Nifty 50 and small cap sectors appears promising. Investors are advised to do their due diligence and invest wisely, keeping in mind the expected earnings growth and market outlook. With the right strategy and a keen eye on market trends, investors can capitalize on these opportunities and secure strong returns.