India ended 2022 as the second best performing market, according to brokers, but 2023 will be dominated by global factors.
A recent report by Kotak Institutional Equities said 2022 could be a template for the future, given rising geopolitical risks, rising interest rates, China’s economic slowdown and uncertainties related to climate change. says.
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Nifty50 delivered a 4% return in rupee terms, but -6% in dollar terms.
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Growth in valuation premiums, both in absolute terms and relative to peers, is offset by strong domestic growth and expectations for resilient earnings growth, according to Standard Chartered’s outlook for the Indian market . Brokers have taken a neutral stance on Indian equities in 2023.
Among equities, StanChart is overweight large-caps, as macro fundamentals are relatively strong and earnings and valuation margins of safety are greater than those of small- and mid-caps. The company is overweight the domestic sector due to global macroeconomic weakness and improving earnings resilience. He projects Nifty EPS growth of 15.5% and 18.3% for FY23 and FY24.
Steady domestic growth is likely to underpin company earnings and profitability, and earnings forecasts remain strong, it said. Additionally, the recent decline in equities and strong earnings offerings have created some valuation buffer. Steady inflows from domestic investors have been an important support in the inflows to the systematic investment plan.
However, risks to a positive view on equities include a possible global slowdown and possible downgrade of earnings expectations, above-average stock valuations (both absolute and relative), and higher bond yields. , and consistent FPI selling amid slowing DII flows. .
Banks report that valuations have eased but are still rich relative to historical averages. Nifty’s 12-month futures P/E trades at 19.2x, down from its peak of 23x. However, it is higher than the long-term average of 17.1 times. The price-to-book ratio (P/B) was 3.3x and the m-cap to GDP ratio was 102%, well above the long-term average. Mid caps trade at a 21% premium to large caps, above the 8% average premium over the decade.
We are overweight financials, industrials and consumer goods.
Similarly, ICICI Securities believes India has performed well in terms of economic and stock market performance in 2022, both in relative and absolute terms. The Indian demand cycle and the lagged effect of rising interest rates on corporate EPS.
However, brokerages believe this volatility presents attractive opportunities for domestically oriented sectors such as banking, capital goods, infrastructure and logistics, leading to large capex spending and margin/earnings by the government/private sector. You will continue to benefit from sexual restoration. Domestic sectors such as retail, real estate and auto accessories (domestic focus) also offer opportunities in the medium to long term.
At the same time, the key risks for 2023 highlight the negative surprises of a Covid flare-up and the continued hawkish stance of central banks.
Brokers forecast Nifty’s earnings growth at a CAGR of 15% in 2022-25E. This is largely due to improved asset quality and a rebound in credit growth in his index-focused BFSI sector, capital spending activity recovery and accompanying execution in the capital goods sector. , automotive, FMCG, metals, pharmaceuticals, and oil & gas margins and profit recovery.
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The optimism around Nifty’s earnings growth may have some merit.
According to Motilal Oswal’s ‘India Strategy’ chartbook, Nifty has achieved consecutive positive growth over the past seven years (CY16-CY22) despite turmoil such as currency deprecation, GST rollout and Covid-19 outbreak. have achieved a return. % CAGR (2.2x) during the period. This marks the first time Nifty has posted positive returns for his 7th consecutive year, with 23 of his 50 Nifty companies achieving positive returns in his 5th of his 7th year. .
Motilal Oswal Financial Services is also overweight in BFSI, Automotive, Consumer and IT.