Markets to be guided by inflation, US interest rate scenario, geopolitical situation in FY24: Analysts

Inflation data, both at domestic and global level, interest rate scenario in the US, geopolitical situation and general elections in 2024 are some of the major factors that would influence trading in the equity market this financial year, analysts said.

Besides, foreign fund trading activity and global trends will also dictate terms in the equity market going ahead.

Equity markets across the globe faced major challenges in FY23 due to concerns over high inflation, which resulted in increase in interest rates around the world, lowering investor sentiment, experts added.

"The first half of FY24 is likely to be challenging but the second half can produce impressive returns. Inflation and interest rates are likely to head lower in the second half of FY24. This will help markets to post decent gains. However, monsoon is an area of concern now," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Recession fears and turmoil in the global banking system made the market more fragile during the latter part of the last fiscal, analysts added.

"The major factor determining the direction of the global and Indian market would be the US inflation and the Fed's monetary response. If the US inflation remains sticky and the Fed is forced to raise rates continuously, equity markets globally will be impacted.

"On the other hand, if the US inflation trends down, equity markets globally will gain. Towards the end of FY24, political scenarios will start influencing the Indian market. However, as things stand now, no negative influences are in sight," Vijayakumar added.

In the entire 2022-23 fiscal, the BSE Sensex climbed 423.01 points or 0.72 per cent.

However, in the broader market the BSE smallcap gauge fell 1,258.64 points or 4.46 per cent and the midcap index dipped marginally by 42.38 points or 0.17 per cent in the 2022-23 fiscal.

"Global financial stability, inflation, and the US interest rate cycle scenario will have a significant impact in the first half of FY24. The geopolitical environment will continue to be crucial. Prior to the elections in 2024, which will be the most crucial event in FY24, there will be a number of state elections. Corporate earnings will also play a significant role in how well each stock performs," Parth Nyati, Founder at Tradingo, said.

Amid muted trend in equities, Dalal Street investors became poorer by Rs 5.86 lakh crore in 2022-23 fiscal as the market faced a tough time in view of plenty of negative triggers such as high inflation, geopolitical conflicts and higher interest rates.

"Despite the ongoing market downturn, most of the negative impact on prices has already been factored in by investors. If there are no major unexpected events, we can expect both the benchmark indices to gradually recover and potentially revisit all-time highs," Nyati added.

The BSE benchmark hit its one-year low of 50,921.22 on June 17, 2022 and later bounced back to reach its all-time high of 63,583.07 December 1, last year.

"Peaking of interest rate cycle globally, geopolitical situation, second order effect of rate tightening over the last few quarters on other facets of economy/sectors, speed of revival of economy in China, weather disruptions (El Nino etc) across the globe are some of the factors to watch out for in FY24," said Deepak Jasani, Head of Retail Research, HDFC Securities.

Market analysts said the last fiscal was a volatile and turbulent one due to various global headwinds, including the Russia-Ukraine war, high inflation and fears of global economic slowdown.

Trends in the equity market in 2023-24 fiscal will also continue to be guided by the movement of rupee and the US dollar as well as international oil benchmark Brent crude.

"With inflation slowing down over the last few months, it would be important to see how this pans out in the first half of FY24 along with the developing situation of the banking sector in US and Europe. We expect volatility to persist as we head into FY24," said Srikanth Subramanian, CEO of wealth management company Kotak Cherry.