Foreign brokerage Goldman Sachs sees Nifty50 scaling up to 23,500 by end-December 2024 even as it does not expect any large market moves around the upcoming 2024 general elections outcome.

The surge in the benchmark index will primarily be driven by the strong 15 per cent earnings growth and supported by the high domestic inflows, Santanu Sengupta, Senior Asia Economist, Goldman Sachs India and  Sunil Kaul, Senior Asia Equity Strategist, Goldman Sachs Singapore said in a recent note. 

Equity markets have historically traded well heading into the elections, with Nifty rallying more than 10 percent in the six months preceding elections in four of the past seven general elections, they noted. “With the roughly 15 percent rally in Nifty since November and market expectations of policy continuity priced in, we don’t expect large market moves around this election outcome”, they said.

On a roll

India’s equity markets have been on a roll since December last year post the BJP’s State elections triumph and saffron wave sweeping the Hindi Heartland, adding nearly 2,200 points between December 1 last year and February 19 this year. Nifty50 on Monday hit an all time high of 22,186 before closing at 22,122 on some profit booking. 

Strong macro fundamentals coupled with a higher fiscal consolidation aim for 2024-25 in recent interim budget has also boosted investors’ confidence and fuelled equities rally. However some market watchers contend that Indian benchmark indices and the broader market as well may be overvalued at the current levels.

Most analysts point out that the 3QFY24 corporate earnings have exceeded expectations, with the BFSI and automobile sectors driving the overall performance.

Sengupta and Kaul highlighted that Indian general elections have historically been an important driver of financial markets. “While earnings will primarily drive the market, we expect the flow backdrop to remain supportive as domestic inflows remain high amid the rapid financialisation of household savings and foreign inflows are likely to pick up further after the elections, in line with prior election cycles”, they added.

Sengupta and Kaul also said that past pre-election rallies, which occurred on expectations of a stable government, were led by domestic cyclicals.

Growth and inflation 

Goldman Sachs does not expect India’s economic growth to increase following the upcoming general elections given the slowdown in government spending that it anticipates this year amid fiscal consolidation efforts.

On the inflation front, Goldman Sachs expects inflation to increase after the election. However, it doesn’t expect it to happen until the fourth quarter, as it is of the view that food inflation will remain relatively benign until then. “Over the last four general election cycles (2004, 2009, 2014,2019), both economic growth and headline inflation, on balance, declined marginally heading into the elections and increased modestly thereafter”, Goldman Sachs note added.

RBI policy

Sengupta and Kaul highlighted that historically, the RBI eased policy heading into the elections and didn’t hike policy rates for at least nine months after the elections. “We expect the RBI’s easing cycle this year to begin in stages, with the RBI first changing its policy stance from ‘Removal of Accommodation’ to ‘Neutral’ and easing banking system liquidity in Q1/Q2, followed by 25 basis points rate cuts in each of Q3 and Q4, which would bring the policy rate to 6.00 per cent by the end of 2024”, said the recent Goldman Sachs report.