Dear Reader,

In a few weeks from now, India’s companies will total what they did in a year, financially speaking, and report it to their shareholders. Fourth quarter results too will be released, but they are more of a balancing figure. While we will be on top of that, bringing you results, analysis and investment views, that’s after all a rear view of how FY24 went.

Much of it is already reflected partly in the wealth created for stock market investors in the past year, with the S&P BSE Sensex up by nearly 25 percent over a year ago and the Nifty up by 29 percent. In today’s edition, our columnist Ananya Roy takes a close look at what led to the rally in shares of different shapes and sizes, the relay rally run by FIIs and DIIs that kept investors in a good mood in FY24, and then a forecast on what’s likely in FY25. She has a cautious message for investors that they should pay close attention to. Don’t miss it.

These increases, of course, also reflect anticipation of what lies ahead in FY25. Investors will tune in to management commentary, in their media and investor calls, to assess how the year is likely to pan out. While this will be true for all stocks, the interest will be higher in mid and small caps, where doubts have arisen on whether froth has built up and to what extent in these stocks.

Two known events will stand out for their impact in FY25. One is the general elections where the outcome is more or less known that the BJP will return to power, but it will still lead to a slowdown in activity in the first half, as government business slows down. This is important as it will affect sectors that are dependent on the investment cycle, which has been humming on the back of government spending.

Once a new government is stationed and if there are no surprises, then it will be business as usual. And whether that will be confidence enough for the private investment cycle to pick up speed is a question investors will hope to find answers during the current fiscal. A new government means a final budget will also be forthcoming. While the interim budget has laid out the numbers, the final one could see a slew of announcements laying out the new government’s long-term vision. Investors could recalibrate their investments if it amounts to a material shift in the economic outlook.

The second event is global central bankers taking the plunge on rate cuts. From Indian investors' viewpoint, the US Fed and the RBI are the most important ones to watch out for. Every other week brings some data point that the market pores over to conclude if rate cuts are going to be early or late. While there is the question of how the rate cuts will affect flows into asset markets, for Indian companies it will also mean an era of lower interest costs setting in. Considering that investment demand is what is set to drive earnings, with consumption taking a backseat as of now, lower interest rates will be good news.

An event that’s going to keep hogging the headlines but its full impact is still a matter of debate and conjecture is generative artificial intelligence. In today’s FT selection (free to read for Moneycontrol Pro subscribers), we have a warning from the DeepMind co-founder that the huge amounts of money being poured into generative AI is creating hype that is overshadowing the scientific progress being attained in the field. But he remains convinced that, “the technology was one of the most transformative inventions in human history”. Do read to know more about some of the real-life challenges that AI is proving adept at tackling.

For investors, whether AI is hype or reality is a question that can be a tormenting one. Writing in FT, Morgan Stanley’s head of thematic research in Europe, Edward Stanley, says despite AI-linked shares such as chip companies doing well, fears of a dotcom era redux are floating in the market. He writes that we overestimate the impact of technologies in the short run and underestimate them in the longer run. His firm believes that 2024 will be the year of investment in AI, followed by “measurable productivity” improvements beginning in 2025. These winds of change may blow in developed markets at first but, given the interconnectedness of economies and markets, are likely to be felt in India, too.

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Ravi Ananthanarayanan
Moneycontrol Pro