As we close the chapter on 2024, the financial markets stand as a testament to a year marked by transformative policies, global economic shifts, and sectoral highs and lows. From record-breaking IPOs to significant political and economic events, this year has reshaped investment strategies and market dynamics. Let’s dive into the key highlights that defined 2024.

The Year in Review: Budget, Elections, and the Fed

The 2024 Union Budget set the tone for growth, with a clear focus on infrastructure, digital economy, and green energy. Investors reacted with optimism, especially as policies aimed at boosting housing and real estate were announced, setting the stage for a promising year for the Realty sector.

The political landscape, too, played its part. Election 2024 created its usual share of uncertainties, yet the market remained resilient, with investors betting on continuity and stable governance. Globally, the US Federal Reserve’s rate cuts in September 2024 sent ripples across the world’s economies, impacting sectors like real estate and oil as borrowing costs came down and liquidity increased.

Top Performers of the Year: Realty, Auto, and Oil & Gas

Three sectors emerged as clear winners over the past year: Realty, Automobile, and Oil & Gas. These sectors have consistently delivered high returns, and it’s no surprise that they dominate our analysis for this Diwali edition.

• Realty, fueled by government incentives, increased demand for housing, and the ripple effect of falling interest rates, has delivered the highest returns this year.
• Auto sector continued its upward trajectory, driven by surging demand, especially in the electric vehicle (EV) space, coupled with economic recovery and increasing consumer confidence.
• Oil & Gas has benefited from rising global energy prices, making it one of the top performers in the market. Despite the global transition towards clean energy, traditional oil companies have seen profits soar due to high crude prices and geopolitical shifts.

These sectors have ridden the waves of economic change, emerging stronger, and providing investors with substantial returns.

IPO Mania

In addition to sector performance, 2024 has been a remarkable year for Initial Public Offerings (IPOs). We’ve seen a flurry of companies debuting in the stock market, attracting investor attention. This IPO boom reflects a broader trend of renewed confidence in equity markets as companies seek to capitalize on favourable economic conditions and liquidity. The retail investor’s enthusiasm for IPOs this year shows that new market entrants continue to offer exciting opportunities.

Indian Elections and Equity Markets: Navigating Volatility, Trends, and Investment Strategies

The Indian equity market has long been influenced by political events, particularly general elections. Historically, election outcomes have had a significant impact on market sentiment, often driving market rallies or corrections based on perceived policy changes and economic outlooks. As India prepares for upcoming elections, it's crucial to understand how markets have reacted to election results in the past and examine the recent performance trends that could offer insight into future movements.

Elections' Effect on Market Performance

Past Results of the Market In Years of Elections:
India's election years have historically seen increased investor interest and market activity, which reflects the anticipation and unpredictability around prospective policy changes and the stability of the government. Examining past market data reveals a distinct pattern: due to expectations of stable political conditions and continued economic policies, markets typically perform well both before and after elections.

Market indices often climb in the six months preceding elections as investors start to position their portfolios favourably based on anticipated election outcomes, according to data from previous election cycles. For example, prior elections have resulted in an increase in average market returns, indicating a good feeling among investors driven by the possibility of stable government and the expectation of reformative measures. Moreover, this rally usually lasts after the election since established policies and new government structures give market movements a more defined course.

Impact of Indian General Elections 2024 on Nifty: A Timeline of Market Reactions

The Lok Sabha elections, which took place from 19th April to 1st June 2024, brought significant volatility to the Indian equity markets. Below is a breakdown of the Nifty's performance during key election events:

As seen from the table, the market remained volatile throughout the election phase, driven by shifting expectations and political uncertainty. During the election season, the Nifty climbed by 6.41%, reflecting optimism. On 3rd June, when exit polls indicated a likely continuation of the government with a strong majority, the market gained another 3.59%.

However, on the result day (4th June), when actual results deviated from exit poll predictions, the market plunged by 8.52%. Despite this initial shock, investor sentiment quickly recovered, with Nifty delivering a strong 9.92% return in the month following the election.

This pattern—a pre-election rally followed by a post-election recovery—highlights the market’s resilience and longer-term bullish outlook, despite short-term volatility triggered by political transitions.

How Do Investors Navigate Stock Decisions During Election Cycles?

Union budget and Indian equity market performance analysis

The Union Budget significantly influences the Indian equity markets, with reactions varying based on investor sentiment, proposed policies, and economic outlook. Historical trends highlight a few key patterns:

Short-Term Realities: Market Performance Before and After Budget Announcements

It's clear that short-term market volatility before and after the budget date is minimal. As Rational Investors, it's crucial to focus not on these short-term fluctuations but on understanding how the government's Initiatives and Policies contribute to India's long-term growth story.

Investor Strategies Post-Budget 2024

As the 2024 Union Budget sets the stage for a transformative New India, investors can align their strategies with key sectors highlighted in the budget:

Fed Rate cut: A key Event

One of the most significant economic developments in this year was the Federal Reserve's decision to lower interest rates by 50 basis points in September 2024. This marked the first rate cut in four years and was a pivotal move aimed at stabilizing a slowing U.S. economy and addressing rising unemployment, which reached 4.2% by August 2024.

The U.S. Federal Reserve's interest rate decisions, particularly rate cuts, have a significant ripple effect across global financial markets, including India's. When the Fed reduces rates, it usually aims to stimulate the U.S. economy by making borrowing cheaper, which can lead to lower global yields and attract investors toward equity markets for higher returns.

Fed Chairman Jerome Powell emphasized that the rate cut was designed to tackle inflation, which had been persistently high at 4.9%, while also addressing concerns over the labor market. The move was a response to broader economic risks, including uncertainties surrounding employment trends.

The US Fed's recent 50 bps rate cut is expected to positively impact global markets, including India. While stocks reached record highs, profit booking occurred due to elevated valuations. Continued rate cuts through 2026 may attract foreign capital to emerging markets.

How a Fed Rate Cut Affects India: (Infographic)

How the Indian Market Reacted One Month Before, During, and After a Rate Cut!

In the month leading up to the rate cut, Nifty gained 2.63%, reflecting positive market sentiment in anticipation of the policy change. However, on the rate cut day, the index dropped by 0.16%, suggesting some caution or profit-taking by investors. In the month following the rate cut, the Nifty declined further by 1.42%, indicating that the rate cut did not immediately boost market confidence or may have raised concerns about economic conditions.

As a rational investor, focusing on rate-sensitive sectors like IT, Metals, Chemicals, and Banking could be a strategic move. These sectors are significantly impacted by rate cuts, as lower interest rates can reduce borrowing costs, improve profitability, and drive sectoral growth. With further rate cut indications from the FED, these sectors may continue to stay in the spotlight over the next year, providing potential investment opportunities as businesses in these industries benefit from a more favorable interest rate environment. Investors may want to closely monitor these sectors for both short- and long-term growth prospects.

IPO Boom: A year of Big Bets and Bold Investments

The Indian IPO market has been on fire from Diwali 2023 to Diwali 2024, witnessing one of its busiest years ever. With 58 mainboard IPOs and 172 SME IPOs, this period has marked the highest number of listings seen in recent history. Companies across diverse sectors have tapped into the market, collectively raising over ₹50,000 crore. This overwhelming activity was fueled by increasing retail and institutional investor participation, who saw IPOs as golden opportunities to make quick gains.

But a significant change in investor behavior has been notable this year. Traditionally, IPOs were viewed as long-term investments, with investors holding on to shares, expecting future growth. However, the trend this year leaned heavily toward "listing day profits." Many investors rushed to book profits as soon as stocks were listed, taking advantage of the immediate spike in share prices. The idea of "flipping" IPO shares for quick gains has become a common strategy.

One of the best examples of this was Ola Electric Mobility's IPO, which, despite having a hefty issue size of over ₹6,000 crore, saw many participants sell off their shares on the listing day, taking advantage of the high demand and price surge.

The Swiggy IPO also garnered massive attention, marking one of the largest tech IPOs of the year, with its listing slated to break records in terms of demand. The company's innovative model and consumer reach have attracted investors despite concerns over valuation.

Moreover, investors have been carefully selecting IPOs for short-term profits. However, not all IPOs followed the same pattern. Some, especially from the SME space, have seen exceptional returns. For example, HVAX Technologies, which listed in October 2024, closed 6.21% above its issue price, making it one of the standout gainers in the SME segment.

This year's IPO wave has demonstrated that while the market remains highly attractive, especially for short-term gains, it's important for investors to balance the excitement of immediate profits with long-term strategic thinking. As Diwali 2024 approaches, the IPO market remains a key player in the financial landscape, offering opportunities to both seasoned investors and newcomers alike.

Looking Ahead: Building on 2024's Momentum
As we wrap up a remarkable year filled with market milestones, economic shifts, and investment opportunities, 2024 has left a lasting impact on the financial landscape. The lessons learned and trends observed this year provide a roadmap for navigating the uncertainties of the coming year. Investors who embrace resilience, focus on long-term strategies, and stay attuned to macroeconomic developments will be well-positioned to make informed decisions. Here’s to carrying the momentum of 2024 into a prosperous and insightful 2025!