Sensex, Nifty lag global peers in 2024 amid weak corporate earnings outlook

Indian benchmarks blazed to record highs in the first few months of 2024 but slowing corporate earnings and an exodus of foreign funds curtailed their annual gains to about 8.5 per cent, the least among major global peers, and even pushed stocks into correction territory.

The Nifty 50 and Sensex rose 8.8 per cent and 8.2 per cent, respectively, this year, logging their ninth straight year of gains, mostly on support from domestic institutional investors and policy continuity after India's ruling party returned to power. 

The benchmarks rose about 21 per cent each to hit record highs on Sept. 27. They slipped into correction territory - a 10 per cent drop from all-time high levels - in November, hurt by record monthly foreign selling in October and a moderation in earnings growth.

 

The blue-chips are still in correction territory.

This decline resulted in the benchmarks underperforming the Nasdaq Composite, Dow Jones Industrial Average, S&P 500, Nikkei 225 and Shanghai Composite, which advanced 12 per cent-32 per cent this year.

However, inflows into equity mutual funds more than doubled year-on-year to a record high of Rs 3.53 trillion ($41.23 billion), cushioning some of the volatility in foreign flows.

Foreign portfolio investors (FPI) remained net buyers for the year as of Dec 30, adding stocks worth Rs 2,026 crore.

Lofty stock valuations, earnings pressures and macroeconomic challenges resulted in domestic equities underperforming some global markets, said Nikhil Rungta, chief investment officer of equity at LIC Mutual Fund AMC.

The smallcaps and midcaps gained about 24 per cent each in 2024, outperforming the benchmarks for the second straight year as domestic investors and mutual funds piled on due to the return potential in these segments.

"From here on, action in small and midcaps will get very stock-specific, dictated by earnings over the next two quarters, which will have to justify lofty valuations," said Krishna Appala, senior research analyst at Capitalmind Research.

The Federal Reserve's outlook for fewer interest rate cuts, which could trigger further foreign outflows from developing countries including India, and US President-elect Donald Trump's proposed policies will be major factors for emerging markets in 2025, according to analysts.

Among stocks, Reliance Industries, the second-heaviest stock in the benchmark indexes, dropped 6 per cent, posting its worst year since 2011 on weaker earnings in the last two quarters.

Asian Paints lost about 33 per cent, its worst ever annual performance, hurt by weak earnings and rising competition.

Trent, a retailer, gained about 133 per cent, the most among Nifty 50 stocks, helped by stable earnings till the September quarter.

Among sectors, the pharma index was the top sectoral performer, jumping 39 per cent, aided by steady sales growth in domestic and U.S. markets as well as stable pricing in the U.S.