In @Bandhanmutual’s Equity Outlook 2024, titled “A Tale of Three Probables,” we explore how historical cycles might offer insights into our current high inflation and interest rate scenario.
A quick look at the key takeaways from the report. But before that,
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Cycle I – The 1994-95 Soft Landing: The Fed took action, inflation was tamed, and the economy sailed smoothly. ⛵ GDP growth stayed healthy, and the dollar weakened.
Cycle II – The 1973-79 Inflation Strikes Back: High GDP growth led to soaring inflation. The Fed fought back with high-interest rates, and the dollar was weak.
Cycle III – The 1945-50 Debt Deleveraging: Post-WWII, high inflation met government debt. The Fed kept rates low to stimulate growth.
@bandhanmutual report says that 2024 might echo the 1994-95 cycle:
??US inflation fell from 9% to 3%
??Fed hiked rates, but strong GDP & low unemployment persisted
??If real rates stay high, US economy may slow, with falling rates
??Neutral outlook with global headwinds, equity tailwinds
1970s-style inflation resurgence is unlikely, but not impossible.
??Fed might cut rates due to high government debt-GDP, boosting equities, economy, and valuations.
??Inflation resurgence unlikely, credit risk reduced.
??Emerging markets could outperform as developed markets see falling rates.
Option 3: Tail risk of tightening causing a credit event or recession. The odds are lower now, but still, a concern. ?
? On the global stage, emerging markets might outshine developed markets as interest rates in the latter fall.
?? India Shines: Domestically, India’s looking bright with strong demographics, political stability, and reforms paying off.
@bandhanmutual report suggests, while high returns may not continue for the broader market, small and midcaps still deserve a spot in your long-term equity portfolio.?
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