2023 could be a tough year for equities and may yield returns similar to those in 2022 but with higher volatility, said Deepak Jasani, Head of Retail Research, HDFC Securities. In an interview with MintGenie, he noted that India remains a buy-on-dips market. He also suggests investing in fixed-income instruments as well as gold.
2022 is set to end positive despite being a volatile year. What worked for the Indian markets and what didn't?
India benefitted from better management of macros including inflation management and corporate earnings which did not disappoint majorly despite challenging times. This meant that India got a larger than proportionate share of FPI funds directed toward emerging markets. Rising trade/fiscal deficit and pressure on Rupee were viewed negatively.
Do you see double-digit returns from the Indian market in 2023? Your outlook for the next year?
2023 could be a tough year for equities and may yield returns similar to those in 2022 but with higher volatility. History suggests that global stocks won't bottom until the Fed cuts rates. We believe, there is a downside risk to FY24 consensus earnings and a limited scope of valuation upside. This will keep the upside for the index capped. This view could change if we see economic growth accelerating and interest rates peaking soon across the globe and also in India. India remains a buy-on-dips market.
What are the 3 key themes you would advise investors to bet on in the upcoming year?
BFSI, industrials and automobiles may outperform the Nifty and other sectors due to the tailwinds enjoyed by these.
Do you see inflation consolidating within the RBI range in 2023?
Inflation may moderate in India in H2CY23 aided by a slowdown across the globe, commodity price fall, robust rabi crop output, etc.
Apart from equities, which other assets are you bullish on currently?
Given the attractive rates on fixed-income instruments, now is a good time to allocate appropriate amounts into a debt portfolio for 3-7 years. Investment in gold (5-10% of portfolio) as an asset diversifier strategy is also suggested.
What were the key lessons one should take from 2022?
Key learnings of 2022:
· Sheer availability of money across the globe meant that past correlations among asset classes did not work in such times.
· One should never try to fight central banks which can influence the availability of money and the risk-taking abilities of market participants.
· Interest rates and inflation can take a long time to correct from high levels.
· Revenue and its growth are important from a valuation perspective, but that has to translate into cash and net profits in the foreseeable future.
· Fund flows from foreigners can be vacillating and go from one extreme to another in a short period of time.
· It may be easy to increase the size of the central bank balance sheets, but very difficult to scale it back.
· Globalisation seems to be under serious threat and localisation could be the next thing. However, financial markets globally remain interlinked due to the easy movement of flows.
· Populism in politics is not limited to developing economies but is equally prevalent in developed economies. Population across has become short-termish and worries about the next month, quarter or year.
· US dollar continues to be the currency of choice across the globe. Gold failed to rise in uncertain times and could gradually lose the safe haven status, though it remains the next best to USD. However, the fear of dollar reserves being frozen by the US could lead other economies to look for alternatives.
· Despite advances in science, Covid virus has not been eliminated.
· Bubbles keep forming every few decades with cryptos being the latest one. Even well-educated people fell into the trap and regulators missed tightening regulations in time.
· Countries have to fend for themselves, though friends may make token gestures/offer small help.
When we say investors should consistently rebalance or churn their portfolio, what exactly would you suggest?
Investors will do well to check their asset allocation and ensure that due to the rise in equities over the past two years, their equity allocation has not gone overboard. For investors who are under-invested in equities, any time is good enough to top up, although a staggered buying would be advisable for them. They may also review their equity portfolios and take some profits out of stocks that have outperformed very well over the past two years and raise some cash for deployment after a decent correction. Similarly, they can look to exit stocks (irrespective of profit or loss) that have not performed in these good times after checking the reasons for the underperformance.
What sectors are you cautious about going ahead?
Metals, Oil & Gas may be avoided for a few more quarters.
What are your expectations from the budget?
· Markets would like the finance minister to stick to fiscal consolidation path and not go populist
· not tinker with Capital Gains taxation
· remove double tax on buyback through open market
· not tinker with direct tax rates
· keep borrowings under check so that interest rates in the system do not rise further
· provide further incentives on exports of goods and services to bring trade/current account deficit under control
· widen the tax net without increasing compliance requirements
One piece of advice for new investors in 2023?
New-to-market investors would do well to take baby steps in the markets by starting a SIP in MFs. After gaining some confidence and developing some investing skills, they can look at lumpsum investing in MFs. Later they can look at direct investment in equity markets by following money management principles and assessing their risk appetite. For this they will also do well to take help of evolved investors within their network or investment advisors/brokers.