2024 – a tough year to navigate and how to make it easy

Wish you all a happy, healthy, and prosperous 2024, from all of us at PrimeInvestor! 

At the beginning of 2023, we said it would be a year of do-it-yourself investing.  You could well have removed the ‘do-it’ part and just been yourself and earned return – like a Goldman Sachs report on the US market said, ‘All you had to do was stay’. With 19.4% 1-year returns, the Nifty 50 comfortably ensured you beat inflation and fixed income options. 

But do remember, much of this return came between October-December 2023. That means you should have waited patiently before your portfolio picked up. Strong inflows and local state election results fueled returns in the Indian market towards the end of 2023. 

Stable inflows, reasonable macro stability, and strong earnings in India have thus far ensured that India remained immune to global uncertainties. But as a large market by itself, we don’t think India can be cut off from global trends. 

To this extent, as we step into 2024, we believe there are more macro uncertainties, some of them with binary outcomes (like the elections), that can swing the market on either side. Besides, there are newer challenges for you to assess and take a call on.  

(Do note that we will come up with a separate debt and equity outlook for 2024. This is just a precursor and at the end of this post, you will know why you would need good research support to navigate 2024 😊)

More uncertainties than before

Some of the key uncertainties that can influence investments, opportunities, and returns are given below.

#1 Monetary policy the world over

While expectations of rate cuts by the US Federal Reserve (and locally in India) remain, there is a large consensus that it may not come by early. And the other side to a rate cut is not always rosy! Because, whenever monetary policy turns over-accommodative, it may well signal that economic growth is trending lower (after all that is when policy makers feel compelled to reduce rates – to fuel growth). 

2023 largely went by without any real expectation of rate cut. But 2024 might keep the market on tenterhooks on ‘when’ a cut can happen. This factor, therefore, lends more uncertainty in the market in 2024 than 2023. 

For a stock’s valuation, there are 2 key factors that impact it – earnings growth and the interest rate (since it determines the discount rate). As you may know, a lower interest rate makes the present value of future earnings more attractive (low discount rate) and hence provides room for valuation (PE) expansion. 

If interest rates remain high without a cut, then it also constrains the expansion of equity valuation. Essentially, it leaves less room for growth in stocks. But what if Reserve Banks world-over think they should get accommodative only when growth slows? In such an event, while the discount factor may be low as interest rates lower, a cut in earnings forecasts (lower growth) can keep the market stymied. That is what makes this a Catch-22 situation. And between these extremes, one needs to find the right opportunities to invest or stay invested.

#2 Year of elections

While it is macro trends, inflationary pressures, and earnings growth that primarily matter, elections sometimes throw a spanner in market movements. While they do not directly influence the market, the risk appetite of the market and that of global investors tend to change with these short-to -medium term uncertainties (remember how the Brexit vote roiled the Indian market in 2016?). 

Potential policy changes and spending plans by new governments would become a reference point for building growth forecasts for the economy. It’s not just our own elections that can be a market influencer; it’s a year of elections with the US Presidential election and UK elections also tabled for 2024. The market will never be far removed from political uncertainties! And that is not including the ongoing conflicts and geopolitical tensions. 

#3 Fewer opportunities at the top

Markets follow nature’s rules. In the real world, as you scale towards the top of a mountain, vegetation, water, and oxygen becomes scarce. Survival is tough. With markets, it’s the same. 

Your opportunities get fewer as you need to find stocks that can grow from a high base. 97% of the Nifty 500 stocks have touched their 52-week high in 2023! And 2 in 3 stocks in the Nifty 500 hit their 52-week high between October-December 2023 alone, suggesting how swift the move has been. 1 in 3 stocks have already delivered over 50% returns. 

The Nifty Smallcap 250 has been on a roll and penny stocks of yesteryears have turned multibaggers now. All of these point to a bubble in several pockets. If you have not read this article on 5 signs of a brewing market bubble by Aarati Krishnan, you must. The challenge therefore is about searching for those less conspicuous opportunities, without getting swayed by the ones that are seemingly obvious. 

#4 Too many different products vying for your money

It is not just the macro challenges but the investment product landscape that can challenge you. If mutual funds and insurance were the only products your relationship manager came to you with, today it is PMS, AIF, bonds, smallcases, SGBs, Gilts and a lot more. 

And to add to this, online platforms have their own version of finely sliced, retail-pocket-friendly lending, real estate, and gold products to invest in. Elsewhere, some countries are trying to build an ETF from a product (Bitcoin) that has its very demand origins coming from too many people holding it and not allowing it to fail (rather than any clear fundamental factors). 

Which ones to skip and which ones to accommodate in your portfolio is going to get more challenging than ever. And when you get desperate for returns, the agenda behind most products start to blur, leaving the $ sign alone bright and clear 😊 

Back to good old research

Given this list of uncertainties that could mark 2024, we strongly believe you need good research to navigate the year ahead. No, we don’t mean run-of-the-mill social media views! In fact, we worry these could prove disastrous for your portfolio. 

We think the period of Telegram stock tips, Finfluencer recommendations and social media shares of rags to riches story may slowly see the beginning of the end (newer forms may well take over – like AI providing you with such tips; making it harder for SEBI to crack down) for two reasons: 

• One, broad market themes will be replaced by a stock picker’s market in 2024. That basically means you will need to do deep research to unearth the limited opportunities or the right opportunities. (To us, every market is a stock picker’s market – going bottom up, analysing and recommending). Merely calling on market-fancied themes or momentum indicators alone may not help. A sideways market is not a friend of such strategies and strategists.

• Two, SEBI has not only been making a crackdown on unregulated research but is also making a clear distinction between platforms that execute and those that provide research and advisory. To this end, EOP or Execution only platforms are now a separate class of license under SEBI. It signals that you need to go elsewhere for proper research and recommendations and use these platforms more for executing. This is true of the bond market as well. 

While there may be many ways to good research, at PrimeInvestor our three-pronged strategy has been as follows: 

• Contain downsides through asset allocation and low volatile calls: We have been active proponents of asset allocation in all market conditions and give calls in debt – across deposits, gilts, bonds, and debt funds. With mutual funds, our primary objective has been to ensure that funds are able to contain downsides in times of turbulence. We do not shy away from holding funds that may underperform a bit in big bull markets only to make it up with great downside containment in falling markets. We know this strategy paid off well in the past.
• Stay with the market: Our second endeavor is to ensure you get at least market returns for some part of your portfolio. This is why we are active advocates of passive investing with calls in index funds and ETFs. As we are not selling products or earning commission, our endeavor at all times is to minimize cost and ensure market returns for at least a part of your portfolio. Towards this end, we not only look for index funds with low tracking error but also help you identify interesting, lesser-known indices that actually beat the bellwether index or their parent index. In other words, our research helps you even with the right passive choice. 
• Generating alpha: For this part, we use stocks, smallcases and in debt select calls on risky bonds. Needless to say, a combination of macro factors, sector position and bottom-up stock picking is used at different times to suit different market conditions. Sometimes, a call on a sector works well; at other times, a stock from a totally out of favour sector also works well. Active stock picking and market timing when combined right, results in good calls.

Adding value in 2024

In our 2023 new year post, we mentioned 4 things we planned to add to the PrimeInvestor platform. We added 3 out of those 4: 

• A super unique Portfolio Review Pro tool that fetches your mutual fund holdings across all modes you may have invested in, give returns & other portfolio details, and review your portfolio across risk, asset allocation, fund quality, concentration, and expenses
• A Prime Community for healthy and vibrant discussions amongst you all and where we also chip in every so often
• A smart Build your Own Portfolio tool to help you customize portfolios for yourself, but in a guided way so you don’t go wrong

What we could not manage was a highly customized Dashboard – but it’s still on our list! That is, here’s a brief on what we have planned for the PrimeInvestor platform for 2024:

• Complete the Dashboard project, as mentioned above. Our aim with this is to let you customize what you see and alert you better on our recommendations and articles.
• Multi-PAN review in Portfolio Review Pro: Allow you to add your family members’ mutual funds through their PANs in the Portfolio Review Pro. With this feature, you can choose to review ALL mutual fund holdings across your entire family together, or any combination of funds held under different PANs.
• PMS rankings: While many of you have asked us which PMS to go for, we have not been able to give a quantitatively verified response given the lack of proper data to analyse and compare in PMS. Towards this, we have now tried to source data that will help us compare and analyse a majority of the large PMS options and provide you with a ranking of sorts or a recommended list of PMS houses to go for. We believe this will help some of you with large corpus and less time to build your own stock portfolio.
• Stock Review Tool: While we can boast that our MF Portfolio Review Pro is comprehensive, going to the extent of letting you know whether you are with the right level of risk, allocation, and funds, it is a harder task when it comes to stocks. Still, we know it will be among the most useful tools if we build it right! This is a mega-project for us, which we plan to at least make a beginning on this year – the sketch we have for this tool as of now is for it to provide you a one-shot view of your stocks (as we have with mutual funds) and to tell you where your risk lies, where you are overweight, stock rankings and so on. We’ll tell you more on our plans for this stock review tool once they become more concrete!

As 2024 unfolds, at PrimeInvestor, we commit ourselves to going that extra mile to ensure we identify the right investment opportunities for you when the challenges become too many for you to navigate. Do note that this might mean missing a few as well. But then, you give some to get some 😊 

Happy New Year and Happy Investing!