Recap 2023, Marching into 2024 (News that moved markets)

26 Dec 2023 , 11:35 AM

LOOKING BACK AT THE YEAR 2023

Year 2023 was significant in more ways than one. The year began with the collapse of small US banks and the Big Hindenburg expose of the Adani story. To make matters worse, the Israel Hamas war eventually turned into the Red Sea attacks, which worsened the oil price scenario for the world. However, India had its other share of news too. During the year, India raced past China to become the most populous country in the world. 

It was also the year when the manufacturing shift from China to India began to take tangible shape. At the same time, the Indian markets moved decisively towards T+1 settlement and it has managed it successfully. But in the realm of equity markets, there is only one thing that matters and that is whether the Sensex and Nifty are up or down during the year. Not only were the indices up for the year, but they also scaled historic highs. Here is the story of the 10 factors that impacted Indian markets in year 2023.

1. India becomes the most populated country in the world

That was long coming but it finally happened earlier than expected. During the year, India crossed the 1.43 billion population mark, making India the most populated country in the world. Now, between India and China they have close to 2.9 billion people, as these two nations now account for 36% of all humanity on earth. For India, there is a much bigger challenge. This is the demographic dividend that we have been talking about all these years and which is why most FPIs are finding India so attractive as a consumer market. 

However, it also means that Indian policy makers will have to work overtime to find gainful jobs for these teeming millions so as to make the best of the demographic dividend. It is already a strain on the $2,200 per annum per capita income as well as its limited resources. How India handles this demographic dividend will hold the key to its future, because India now has to ensure that it does not become a demographic nightmare.

2. Hindenburg leads frontal assault on Adani group

As the new year started and small US banks faced the strain faced the stress of rising rates, another notorious short seller, Hindenburg Research, was charting plans to bring down the prices of the Adani group stocks. In a series of select disclosures, timed with premeditated short positions, Hindenburg Research took the Adani group head on. It accused the Adani group of opaque inter-group transactions, having too much debt in their books and stretching themselves too thin. 

The impact was visible almost immediately as the group lost market value of more than $150 billion in the first 2 months of 2023. However, this was not to last as GQG Investments came in as the Knight in Shining Armour. With the confidence restored, Adani went about paying down debt early to make a statement about its cash flows. By the end of the year, Adani group had recovered more than $100 billion of its market cap. So much so, that by the end of the year, Hindenburg Research almost looked like a footnote in the Adani story.

3. India hosts G20 Summit and makes an oil statement

It is said that any country is as powerful as the statement it makes. For a long time, India did not bother about making statements about its power. India is the second largest producer of steel, sugar and cement in the world and it is the third largest consumer of oil. Year 2023 was when India made a statement in a number of ways. First was the oil statement. Against all odds, India negotiated to make Russia the largest exporter of oil to India. 

Suddenly, OPEC was a distant second and India was getting the rates they wanted. Henry Kissinger said that diplomacy is about putting the national self-interest first, and that is what India did. The other big statement was the hosting of the G-20 Summit. China and Russia may not have attended the summit, but it hardly mattered as the Wild West and the Middle East came in large numbers to lend support to the India story.

4. Gaza, Israel, and the Red Sea conflict zone

What started as a war between Israel and the Hamas has gradually become a humanitarian issue in Gaza and a serious threat to the movement of oil in the Red Sea. The Red Sea connects Asia and Africa and is the most important conduit for movement of oil. Houthi rebels in Yemen were consistently firing missiles at ships in the Red Sea forcing American patrols to step up surveillance. 

There is the risk that it could hike the price of oil if shippers prefer to avoid the Suez Canal route. That is not happening for now, but that remains the big thaw as it impacts the oil flow in the Red Sea as well as in the Gulf of Hormuz. Oil promises to be the sticky subject for 2024 as Iran is likely to get more aggressive and the US could be back with sanctions.

5. China manufacturing shift to India takes off

India has been pitching to be a manufacturing hub, on the lines of China, for quite some time. Normally, the show of confidence has to come from the big names and then the others follow. In this case, Apple led the way shifting much of its iPhone manufacturing to India. It is now hoped that in the next 4-5 years, India should be as important as China to Apple’s global plans. 

Others like Samsung of Korea, TSMC of Taiwan, Boeing of the US are all looking at a much bigger share of the Indian manufacturing story. Even the likes of NVIDIA and Tesla are now keen to have a big base in India and if these take off, then India will truly emerge as a force to reckon with in global manufacturing. Companies may not shift entirely out of China, but India surely emerges as a viable manufacturing alternative.

6. End of rate hikes as we know it

Another big shift that happened in this year was the end of rate hikes; or at least the end of rate hikes as we understand it. India stopped rate hikes in February 2023, but the real hint had to come from the US Fed. Towards the end of the year, the Fed stopped talking about its hawkish stance and openly guided for 3 rate cuts in 2023 and 4 rate cuts in 2024. This is huge and virtually means that rate hikes are now off the table. 

The Fed may not have admitted it explicitly but that is the conclusion that is so easy to draw. The good news is that the end of rate hikes would mean that incremental flows will largely tend to be risk-on and veer towards emerging markets like India. Also, If US is to cut rates by 175 bps in the next two years, the likely value explosion in equities would be huge.

7. Full move to T+1 settlement

The year also saw India fully and finally moving to the T+1 settlement. That means, any shares bought will be credited on T+1 day and any shares sold will result in cash getting credited to the bank on T+1 day. This makes India the only country in the world with such an efficient market infrastructure for settlements. The full T+1 system has been working smoothly for the last 1 year and it has enthused the SEBI to go one step further. 

Now, the SEBI wants to move towards T+0 settlement and later to instant settlements in a phased manner. These are part of the initiatives to make the market more transparent and efficient. This comes on top of the efforts of the regulator to successfully list IPOs within 3 days of the closure of the IPO. That is effective from December and is going on smoothly.

8. Artificial Intelligence (AI) opens up a plethora of possibilities

If there was one technology that defined or threatened to redefine the world, it was generative AI (artificial intelligence). Most ideas take off only when the product is seen in real terms. That is what the launch of ChatGPT did. Now, ChatGPT is a platform that will scour the net and use its own embedded intelligence to answer your questions. It promises to revolutionize the way people create content, edit content and store content. Content almost becomes like an assembly product and becomes a source of power in the hands of millions of people. 

At this stage, it is too early to even envisage the applications of such a concept, but it surely going to be huge. Businesses are now creating their future strategies that are predicated on artificial intelligence and governments are also exploring ways and means to exploit its potential to the hilt. It is not yet picture perfect and it probably will take years. It also has its ethical downsides, but that is true of any new technology. It will be the one big story to watch out for in 2024. 

9. Global temperatures shatter records

Would this really have stock market implications or even macro implications? Actually, much more than you can imagine. This is not just about good or bad, but it is about survival. Year 2023 was also the hottest year on record, according to a study by Greenpeace. It is estimated that temperatures have not been as high as 2023 in the last 1,25,000 years. 

It has been a year of extremes ranging from floods to droughts and wildfires to scorching summers and icy cold winters. That means, the investments in clean and green energy will not just grow, but they will grow exponentially in the coming years. This will be the key determinant of how the fossil fuels are treated and how the oil reserves of the world get valued. This is going to be the enduring debate in 2024 also.

10. Record highs for Nifty and Sensex

One can always argue that the Nifty and Sensex are not everything about the economy, but few variables capture the gist of the macroeconomic situation as eloquently as the Nifty and Sensex do. Stock markets are a consensus view and it is possibly the best barometer of what is happening in the Indian economy. Despite emerging from a tough and challenging year, 2023 is ending with the Nifty and Sensex at all-time highs or close to their all-time highs. 

It is a sign of many things. For instance, it shows that global investors still have confidence in India, otherwise why should big names like Temasek more than double their commitment to India. It is also a signal that India has learnt the magic of formula of growing at a frenetic pace, despite all odds. That is what Nifty and Sensex at record highs indicate.

How much of these factors will matter in 2024?

It is hard to say, but some of these factors are surely going to have a big impact in the coming year. Let me enumerate a few key points. 

• Global warming will be a key variable for economies and for stock market investments and the bias will clearly be towards green and clean technologies.

   

• AI will also be the big story since it just began in 2023 and will take years to mature. But the applications will be a lot more evident in the coming year.

   

• Rate hikes are done and dusted and the attention span now shifts to how the rate cuts are handled and how they are spread out, so as to trigger growth impulses.

   

• The big story to watch for will be the India versus China story. India story picked up momentum in 2023 and it must consolidate in 2024. That remains to be seen.

There is a popular Chinese curse, “May you live in interesting times.” Joseph Chamberlain gave a positive twist to it. For India, year 2024 is surely going to be a very interesting year.