Nifty is expected to have double-digit growth in 2023 following a single-digit rise in 2022 (7% YTD return), says Vinit Bolinjkar, Head of Research, Ventura Securities Ltd. In an interview with MintGenie, Bolinjkar also discussed the risks associated with investing, how to choose the optimal asset allocation strategy, and how crucial it is for new investors to comprehend fundamentals in a volatile market.
1. What is 'risk' in investing? How can new investors be wary of the risk involved?
All investments involve some degree of risk. Investment risk refers to the degree of market volatility and potential financial loss in an investment decision. As investment risks rise, investors seek higher returns to compensate for taking such risks.
2. Avoid putting all of your eggs in one basket, we believe you have heard this adage numerous times. How should one decide where to allocate one's money and how much?
To minimize the possibility of financial loss in a volatile market, it is important to put money in several investment avenues with different levels of risk and potential return, which is known as portfolio diversification. The asset allocation depends on the investor’s risk appetite and his/her monthly savings out of the total income.
3. How to choose an asset allocation strategy that is appropriate for you? How do one choose where to allocate one's assets?
As mentioned earlier, asset allocation depends on the investor’s risk appetite. If the investor has a deep knowledge of the securities market, he/she can take asset allocation decisions, or he/she can consult with a registered portfolio manager/advisor for asset allocation.
4. Why are fundamentals important in stocks? Do you advise investors to stay with fundamentals in a volatile market?
Fundamental analysis is the process of evaluating the financial strength of the company. It involves the analysis of profit and loss (P&L), balance sheet and cash flow with respect to the sector and economy. Investors should stick to fundamentals and use short-term volatility to average the price.
5. What should a novice investor first understand about the stock market? Any advise to the new investors on risk-rewards?
A novice investor should start with the fundamental analysis of the companies to check the financial strength of stocks and start building a diversified portfolio to avoid market volatility.
6. What are your expectations of the markets in 2023? What are the sectors to look out for in the coming year? Is the rally in PSU banks set to continue? What's your outlook for PSU banks in 2023?
Nifty is trading at CY23 P/E of 18.5X, which is marginally higher than its average long-term 1-year forwarded P/E of 17X. However, the strong economic outlook for India along with global recovery augurs well for the future business performance of Indian companies. We believe that the infrastructure, cement, metals, banking and consumption story will play a key role in the overall business performance and it is expected to accelerate Nifty earnings. After a single-digit growth in 2022 (7% YTD return), Nifty is expected to deliver double-digit growth in 2023. We are expecting Nifty to be in the range of 20,500 to 21,000 in 2023, while Sensex could cross the 69,000 mark by Dec 2023.
Improvement in asset quality coupled with healthy net interest margins (NIMs) in the past couple of quarters has improved the sentiments for public sector undertaking (PSU) banks. Furthermore, most of the PSU banks didn’t pay dividends in the past few years due to provisions and exceptional losses. With all the NPAs and provisions that have already been factored in, investors are expecting healthy dividend pay-outs from PSU banks in the coming years, which has increased the buying in the sector. With a lean and healthy balance sheet, PSU banks are expected to sustain growth in the coming years due to rising credit growth numbers and improving profitability. Hence, we are expecting this rally to sustain.
7. Will inflation in 2023 play a major role in denting the market sentiment?
Inflationary pressures seem to be largely under control, but remain subject to global energy prices as India imports most of its energy requirements. The RBI has used a large part of its forex reserves to provide stability to the INR in 2022. While the INR has depreciated against the USD, it has appreciated against other major global currencies like GBP, EUR and JPY. An increase in the import bill could increase pressure on the currency which may accelerate inflation and in turn interest rates.