Investors should expect only modest returns in 2023 but, beyond this year, returns will turn attractive, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. In an interview with MintGenie, he stated that this is the right time to build a portfolio. He believes pharma has the potential to outperform this year and capital goods will continue to do well.
Edited Excerpts:
Why has India been massively underperforming its peers? How long do you see this continuing?
India's underperformance this year is in contrast to India's outperformance last year. The underperformance is likely to end in Q2 CY2023.
What will help Indian markets get out of this underperformance? Better earning, lower inflation, pause in rate hikes?
The Fed has already turned less hawkish than previously and the MPC is likely to pause after one more rate hike of 25 bps in the April policy. This will set the stage for a market recovery. The declining trend in India's inflation and consistent improvement in macro fundamentals like declining CAD will aid a market recovery.
Is this scenario a good time to start investing? What kind of portfolio allocation would you recommend?
This is the right time to build a portfolio. Investors need to expect only modest returns in CY2023. But, beyond 2023, returns will turn attractive. A 60-40 allocation for equity and debt will be ideal for now for long-term investors.
Mid and smallcaps have corrected more than benchmarks. Does that make them a good ‘buy’ now?
Since the broader market has corrected more, mid and small-caps have turned attractive. Long-term investors can make lumpsum investments in the leading mid and small-cap mutual funds now.
With the debt MFs' tax amendment passed in Lok Sabha, do bank deposits become a better investment opportunity or should one continue with debt MFs?
Existing investments in debt funds should be continued since the indexation benefits will be available for investments made before 1st April 2023. The same is true of international funds too. Bank deposits have certainly become attractive now with rising deposit rates.
In the upcoming RBI policy, do you also see a 25 bps rate hike? Has this been priced in by the markets?
Yes, a 25 bp rate hike is the most likely outcome. The market has discounted this. There is also a 20 percent possibility of a pause, in which case the market will react positively.
When do you see RBI pausing rate hikes?
After the April rate hike. A rate cut is possible by the end of 2023, if inflation comes down as per RBI's expectation.
Banks were massive outperformers in 2022 but underperformed in 2023. Do you see the global liquidity crisis having more impact on Indian banks? Which names should one stick to within this space?
Banks have the potential to continue outperforming. The credit expansion in India continues to be strong. Indian banks are well regulated and there is no risk of a crisis like in the US. The leading large private banks and SBI and BoB are safe bets.
Outperformers of 2022 are turning underperformers in 2023. Which sectors that underperformed last year are likely to outperform in 2023?
Pharma has the potential to outperform this year. Capital goods will continue to do well.
FPIs have remained net sellers in the March quarter; do you see this trend reversing soon?
The sustained selling by FIIs was mainly due to the higher valuation in India. After the recent correction, valuations have become reasonable. But it is a fact that Thailand, S Korea, Taiwan and China are cheaper than India even now, and, importantly, EPS growth estimates for S Korea and Taiwan are higher than that of India. So, they are likely to attract more FPI flows than India.
