Domestic broking firm HDFC Securities believes rich index valuations leave little room for any upside next year and thus did not spell out any definite Nifty target. According to the firm, Nifty could see another 8-10 percent upside from the current levels.

"The Nifty index is now trading at 23x FY24 and 20x FY25 consensus earnings per share, indicating limited upside potential in the next 12 months," said Unmesh Sharma, Head of Institutional Equities, HDFC Securities.

He added that the supply disruptions being caused in the Red Sea are a bit concerning, but as long as the crude price is below $80 per barrel, India will be in a comfortable situation.

The brokerage house also said that the market movement will not be linear, especially in the first half of 2024. This is because the bond market is expecting interest rate cuts in February-March, much sooner than what the Federal Reserve has indicated.

If yields do not come off as fast as the market thinks, less money will come to risky assets like emerging markets," Sharma added. Currently, benchmark US 10-year Treasury yields are hovering near their lowest levels since July.

Themes for 2024

Large-caps will offer better risk-adjusted returns vis-à-vis mid- and small-caps led by higher earnings growth and relatively better valuations, but that does not mean the broader market rally is over yet.

The calendar year of 2023 has seen small-cap and mid-cap rallies with a lot of stocks turning multibaggers. The Nifty Midcap index has gained 44.13 percent since January 1, while the Nifty Smallcap index has gained 55.51 percent in the same period.

"Despite the relentless rally, we wouldn't say it is over. There's a lot of domestic liquidity, which cannot leave the country. This liquidity tends to benefit mid and small-caps," said Sharma.

Among sectors, BFSI, industrials, cement, home improvement, real estate and pharma are expected to show strong earnings growth in FY24 and FY25, he added.

In this context, key stocks in HDFC Securities model portfolio include:

Overweight: Maruti, Axis Bank, Federal Bank, CanFin Homes, SBI Life, United Spirits, Crompton, Ashoka Buildcon, NCC, Sobha, JK Lakshmi Cement, Dalmia Bharat, CESC, MCX, Indian Oil and Mahanagar Gas.

Underweight: Kotak Bank, HUL, Nestle, Titan, Asian Paints, TCS, Tech Mahindra, Reliance Industries.