INDIAN ECONOMY
While 2022 was a Tough year for capital markets, at a time when the global economy is in chaos, India stands out like an oasis in the desert. We have the world's fastest-growing economy. The Indian economy is expected to grow much faster than 7% over the next decade or two. However, 2023 is expected to be a Tricky year.
The good news is that:
• Capacity utilization has now returned to pre-pandemic levels.
• Increased government spending on rural areas.
• Farm income is expected to rise as a result of good crops.
• Monthly GST & direct tax collections are at record-high levels.
There are some concerns as well:
• Rising interest rates and rising capital costs pose challenges to growth.
• High Inflation had a significant impact on earnings.
• The trade deficit to remain high as exports dropped, putting pressure on the rupee & growth.
• Imports of both oil and non-oil products continue to remain above our affordability range.
Exports are the only way for India to grow on a sustainable basis. To boost exports, the government has launched PLI scheme. Private sector investments need to be aggressive. Further, we have to be price competitive enough to support and boost our bottom-line retail consumption.
DEBT
Debt is an essential component of any portfolio because it provides stability. Global inflation expectations appear to have peaked. Fixed-income instruments and debt funds are now suitable for medium-term investments.
BULLIONS
Gold has underperformed significantly in USD terms. However, as the rupee depreciated, gold has provided good returns to Indian investors over the last year. Due to global uncertainty, gold and silver will do well in the future.
Gold is currently under-owned by retail investors. All major central banks are now stockpiling gold in large quantities. Consider investing with a 10-15% exposure to gold and silver ETFs for medium-term investments.
REAL ESTATE
Real estate is similar to stock picking since not all stocks will generate wealth for you. India's real estate market is emerging from a decade-long recession. The next few years should be promising.
However, the reality is very region specific, so one must be in the right place at the right time. Many large cities may not experience much appreciation whereas many cities have already touched skyrocketing prices that are unaffordable now.
EQUITY
Despite multiple rate hikes by the Fed in the last year, Indian equity has continued to rise. India outperformed the MSCI emerging market and global indices by a wide margin. Historically, we have traded at a premium to Emerging Markets. Indian Equity is now trading at a reasonable premium to our long-term average in terms of valuation.
However, only a few Nifty stocks reached lifetime highs during the previous year's rally. Many popular sectors and stocks tumbled, while others surged. That is the unpredictability of the stock market. Most of India's loss-making new-generation companies have been massively sold off, as the emphasis has shifted to profits and earnings.
Avoid high-priced IPOs where the profitability and vision of the promoter are not clearly visible. Don't chase any overvalued sectors or stocks. In this situation, long-term investing in single stocks is also being challenged. It is widely held that you should not marry stocks and should only have love affairs with stocks.
Retail investor participation in equity and mutual funds is another intriguing aspect of the market. Retail investors' MF SIP inflows have now reached an all-time high. Investors are becoming more mature. This has counterbalanced FII outflows while also lowering volatility. This is the strength of domestic purchasing. Global investors are expected to return to India and make long-term investments sooner rather than later.
OUTLOOK FOR 2023
Another interesting point to consider is that the United States will be holding elections next year. And, based on their market returns over the last 5 decades, the year preceding an election year has always produced positive results. That means that somewhere in the middle of this year, we will see a decent bounce back in IT and Pharma stocks, indicating a contrarian buying opportunity.
Again, from India perspective, we will also have a general election next year. So the Union Budget 2023 will be the last budget for the current government, and the following year will only have an interim budget until a new government is formed. There is a high probability of aggressive reforms insight the budget, keeping the next general election in mind. The emphasis should be primarily on infrastructure, growth, and execution.
The most discussed and debated topics in the last year were recession, inflation, interest rates, covid return, earnings decline, and the Ukraine conflict. All of these factors have already been discounted by the market. Having said that, any unknown territory or black swan type of event that the market has not yet detected may throw surprises.
The bottom line is that equity cannot provide easy returns every year. The higher the indices, the greater the volatility. Each year is filled with global, social, political, election, economic, environmental, technological innovation, disruption, war, disease, and other events. Sometimes it's China, other times it's Europe, and the story never ends. We live in an uncertain world; no one knows or can predict what will occur next. We live in a world of possibility and probability.
Equity offers numerous opportunities but is a volatile asset. Nobody will make money if everything is certain. Equity should never be completely ignored, no matter how bleak the future appears. Whether to take overweight or underweight exposure in equity, it totally depends on individual risk appetite. The emphasis should be on how much we gain if we get it right, and how little we lose if we get it wrong.
For the past 7 years, Indian markets have been on the rise. Can we create a new history again? Not easy to answer. But regardless of the year-end closing returns of the indices, the individual script will undoubtedly provide ample opportunities to earn decent returns.
While any given year in the market is difficult to forecast, a good strategy for 2023 is:
• Keep your return expectation reasonable.
• Be prepared for high volatility.
• See correction as an opportunity to enter.
• Keep an eye on sector rotation and churn your stocks accordingly.
• Diversify and adhere to asset allocation.
• Invest in staggered lots over time.
• Avoid leveraging equity. This is not the time to take big risks.
• Avoid companies with high debt; instead, prefer cash-rich companies.
• Avoid spotting high-risk multi-baggers.
• Control your most dangerous emotions: greed and fear.
• Be flexible for changes.
“When the facts change, I change my mind. What do you do, sir?” — John Maynard Keynes
The theme for 2023 would be multi-asset investing. Having a debt, equity, and gold allocation is essential because this year is likely to be volatile and exhilarating. The time has not come to employ equity leverage. When there is a correction, increase your equity allocation. Do consider equity investments whenever significant opportunities arise.
Earnings should be the focus this year, as the market is a slave of earnings. The market's biggest risk is overvaluation. Believe in India because it has a fantastic structural demographic long-term growth story. With caution and optimism, look forward to 2023. There is no reason why returns cannot be generated if you invest logically and select quality stocks.
Finally, ask yourself whether you want to be an owner or a rent seeker. If you are a long-term investor, you should not be concerned about the constant background noise. Maintain asset allocation by investing at regular intervals. When making long-term investment decisions, never be concerned about short-term market reactions. And If you are a trader, you should churn your stock portfolio as soon as you see an opportunity or a correction.
Happy Investing, 2023!
Disclaimer:
· Market risks apply to securities investments.
· Before investing, seek professional advice.
· The data presented above was compiled from various public sources.
· This is not an offer or solicitation to buy or sell any security.
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