Aditya Birla Sun Life Asset Management Company expects compound Nifty earnings growth to be in the low-to-mid teens (13-16 per cent) over the next three years with broad-based growth across sectors including banking and financials, auto, industrials, infrastructure, cement and real estate leading from the front. Nifty earnings growth was at 12 per cent in FY23 and is expected to close at 13 per cent in this fiscal.

Large-cap valuations are at just a 5 per cent premium to their historical average indicating that valuations are reasonable. However, mid- and small-caps have seen strong rally and valuations are above average, warranting caution in the near term.

Mahesh Patil, Chief Investment Officer, Aditya Birla Sun Life AMC said since the soft landing of the global economy has already been priced, the key short-term risks are lower than expected growth and lower rate cuts could lead to deflation in asset prices. Growth as an investment style will outperform value with interest rates expected to decline in this year, he added.

Harish Krishnan, Co-CIO and Head Equity, Aditya Birla Sun Life AMC said Nifty earnings growth will be in the low-to-mid teens over the next three years with broad-based growth across sectors including banking and financials, auto, industrials, infrastructure, cement and real estate leading from the front.

Polarised rally in US

In contrast to the polarised rally in the US which was led by large-cap tech stocks tied to the AI narrative the rally in India was more broad-based with large-cap Nifty rising 18 per cent while Nifty mid-cap 100 and Nifty small-cap 100 rallied 43 per cent and 53 per cent in 2023.

Almost two-third of sectoral indices have outperformed NSE-500 index from FY21 to FY23 which is higher when compared to historical levels. Realty, PSUs and capital goods saw disproportionate outperformance, while private banks, metals and IT underperformed, said Krishnan.

The number of stocks in the NSE-500 universe which has generated 10 per cent alpha is relatively high, indicating broad-based wealth creation.

In 2024, actively managed duration funds are likely to do well within the fixed income space. Short-term funds (Short Term Fund, Corporate Bond Fund and Banking & PSU Fund) could be some of the categories to watch out for in the new year.

As the risk-reward seems balanced across various asset classes, the fund house believes investors should have a multi-asset allocation approach with the right exposure to equity, fixed income and gold.

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