Money managers tell where Indian market is headed in 2023
6 min read 18 Dec 2022, 08:44 PM ISTMoney managers share their outlook on stock markets, US Fed’s rate hikes, recession risks and advice for investors.
Premium2022 could well go down in history as the year that saw inflation rearing its ugly head. Geopolitical shocks starting with the Russia-Ukraine war created inflationary pressures globally, driving up prices of energy—crude oil, coal and gas — and food. The US Federal Reserve, thereafter, embarked on a rate-hike cycle. And this, in turn, has now fanned fears of a global recession. The silver lining, however, has been the Indian equity markets’ performance. Benchmark indices CNX NSE Nifty and S&P BSE Sensex have each delivered returns of about 4%, year-to-date, even touching all-time highs in this period.
What does 2023 have in store for Indian investors. Mint spoke with four money managers on what investors can expect from the equity markets in 2023.
You might also like
Samara Cap leads race for Birla's insurance biz
Poonawalla readies ₹1,000 cr fund for growth-stage firms
Midcap froth clears, but caution remains
Market outlook
Money managers that Mint spoke to say investors should have moderate expectations.
Nilesh Shah, who heads Kotak Asset Management, (which manages mutual fund investor assets of ₹2.8 trillion), says, “Outlook for 2023 remains one of cautious optimism. Our markets had to withstand a lot of volatility and global events. All those events are still playing out. The Russia-Ukraine situation has not yet been resolved. The US Fed’s war on inflation is not yet over. Oil prices can spike either because of cartelization or because of geopolitical events. Globally, the growth scenario is looking very gloomy because of expected fiscal and monetary tightening policies next year. Equity markets will be volatile and the returns could be similar to that of debt funds."
Neelesh Surana, chief investment officer (CIO), Mirae Asset Investment Managers (India), says, “When it comes to global macros, it is difficult to forecast how things will shape up. So, investors should just try and maintain discipline, use systematic investment plans (SIPs) and not commit large amounts of money." Surana oversees investor assets worth ₹1.09 trillion at Mirae.
Sunil Singhania, former global head-equities at Reliance Nippon MF and now founder of Abbakus Asset Manager, is bullish about the future. He says that India’s attraction as an investment destination will only get stronger next year, compared to other countries. He emphasizes on the 4Ds that will work to the advantage of India: Democracy, Demography, Domestic economy and Digital infrastructure. “The advantage of being a democracy was seen in 2022, compared to the volatile situation faced in countries like Russia and China ," he points out, adding that an young demography, healthy domestic economy and rising digital infrastructure are the structural drivers.
Sector outlook
2022 has seen banking stocks deliver strong returns. However, Shah feels, going forward, infrastructure sector can do well. “Previously, we were long on engineering and capital goods. But the cycle of infrastructure— from construction to cement to real estate—appears to be bottoming out and well positioned for growth. We believe infrastructure as a sector could outperform next year."
Rural consumption and manufacturing are the other themes that the investment managers are bullish on.
“We anticipate a recovery in rural consumption on the back of higher winter crop output and higher rural spending in a pre-election year, which is evident from the improvement seen in non-farm employment. A good monsoon and government thrust on agriculture would help in rural recovery," says Surana.
Singhania agrees that the rural economy should do well after a good monsoon. “Hopefully, we might end up with a bumper crop. On top of that, agri-produce is fetching good prices now. So, the rural economy should do well," he says.
On the manufacturing front, he says the benefits of the government’s Make in India push and a China+1 policy adopted by global players, is being felt on the ground. “Apple phones are now getting manufactured here in India. You are seeing manufacturing exports picking up pace," Singhania points out.
Surana is also bullish on the Make in India (manufacturing) theme. Within this, he expects healthcare services to do well. Auto is another sector that he is bullish on. But he says capital goods can be avoided at this juncture. “While revenue visibility has improved because of growth in order book, localization, efficiency, etc, the optimistic narrative on capital goods sector is more than built in the valuations of these companies. So, purely on account of valuations, we are not positive on capital goods sector. Sometimes, good businesses can be not so good stocks," he points out.
Surana says investors should be watchful of how the trends play out for the global-oriented sectors.
Risk of global recession
“The monetary policy has been tightened significantly, which nobody had anticipated. There has been a regime change in interest rates. So, it will have an impact in 2023, particularly in the first half. So, excluding China, global growth will move closer to recession. But whether it is going to be a mild recession or a soft-landing depends on the duration of high interest rates. But we can’t be certain of its impact," says Surana.
Saurabh Mukherjea, founder of Marcellus Investment Managers, is of the view that the risk of global recession has eased. “The data from US has been clear. US already has reported wo quarters of shrinking economic activity, largely because of Fed rate hikes, to the extent that inflation, both oil and commodity prices are cooling off and therefore the feeling is that inflation world over is cooling off. So, the impulse for rate hike is abating. There might be a couple more rate hikes both in the West and in India," Mukherjea says.
“The core inflationary impulse, which drove the hefty rate hikes over the last 12 months have moderated significantly. Therefore, the dynamics that drove two quarters of negative GDP growth in the US in 2022, will not be there next year," he adds.
The road ahead
There can be periods of volatility next year if global events disappoint on market expectations. Experts say investors must focus more on how they should react to these events. “If the Russia-Ukraine situation escalates and there is a correction in the market, it might provide an opportunity to add equities depending upon the extent of escalation. If there is a correction because of the Fed’s policies, investors should be in a position to capture that in their portfolios," says Shah.
He adds that investors ought to be wary when markets discount all the good news on the domestic side and bad news on the global side. “They should adopt disciplined asset allocation. ‘Buy on dip, and sell on rise’ approach might be needed," he says.
Surana says investors doing SIPs with moderate return expectations of 12% CAGR (compound annual growth rate) over a three-five-year period will not be disappointed.
Investment managers agree that Indian economy should do well over the long-term. “Broader economic conditions look very healthy in our country. Job creation, especially in the formal sector, is running at a good clip and the banking system is in good health. In our view, well-managed Indian companies will continue to see revenue growth of 15-20% and profit growth compounding between 15% and 25%," Mukherjea says.
Elsewhere in Mint
In Opinion, Manu Joseph tells how we can get our free speech back. Pranjul Bhandari says India’s got a chance to shed pandemic scars and reach out for the stars. Rajrishi Singhal looks back as we look forward to global cooperation. Long Story narrates how Sebi is trying to separate your money from your broker.
