As we move into 2023, global challenges such as recession fears, geopolitical risks, and the global rise in COVID-19 could pose a challenge for equity markets.
The 2023 US Federal Reserve (Fed) policy action, along with the RBI, will hold weight if the market could gain momentum. Meanwhile, the February federal budget could also have a significant impact on the market, as 2023 will be his last year before the March 2024 general election and many policy-driven announcements are likely. There is a nature.
Given some structural tailwinds that place India in a bright spot on the world map, the overall solid earnings trajectory is expected to continue moving forward as well.
Three themes could play out in 2023: capital spending, credit growth and manufacturing. Credit growth has reached more than 15% in recent months, the highest in a decade, due to a strong recovery in economic activity. A cyclical upturn in many sectors (real estate, autos, banking, telecommunications, etc.) is expected to drive new private capital investment. Meanwhile, federal capital spending is expected to accelerate in 2023, ahead of the 2024 general election. The residential real estate sector is poised to upcycle, driven largely by improving affordability.
Manufacturing is another theme likely to play out in 2023. Industry consolidation will return capacity utilization to its long-term average of 75%, boosting private investment. In addition, the expanding scope of outsourcing by China +1 and Europe +1, together with various government initiatives such as Atmanirbhar Bharat and Make in India, will drive the manufacturing sector’s contribution to GDP from the current 15%.
Long-feared inflation has eased to an 11-month low of 5.88% in November 2022, well below the RBI’s mandated 2-6% tolerance. Nifty’s earnings are expected to remain strong, with a CAGR of 17% over FY2022-24 due to the accelerated promotion of capital investment by the Center and the revival of private investment accompanying the peak of inflation. expected to grow.
Domestic stocks continued to rise for the seventh year in a row, and the NIFTY 50 closed at a record high of 18,105. It has significantly outperformed the global market despite various challenges that have capped its 2022 calendar year profit at 5% of his.
For the full year, Nifty rose 5% and remained resilient compared to the global market. Rebounding demand, easing supply chains, strong domestic macro and better-than-expected quarterly results pushed the index to a high of 18,888 in December.
The Nifty Midcap-100 was also able to end the year up 5%, but the Nifty Smallcap-100 took a big hit, dropping 13% for the year. PSU Bank made a strong comeback, outperforming other sectors by a wide margin with a 73% gain. Meanwhile, the IT department was his biggest underperformer, losing 26%.
(The writer is Head of Retail Research at Motilal Oswal Financial Services Limited).