Sandip Sabharwal, a market analyst and proprietor of Asksandipsabharwal.com, is both cautiously and optimistically looking forward to 2023. In an interview with MintGenie, he said that such a combination will create chances for one to make profitable investments.
He spoke at length about the emerging market trends, expectations from the upcoming Budget, and the sectors that are likely to perform well in 2023.
1. Retail flows in 2022 have changed the market trend and shielded the market from all of the FII selling. Will this pattern persist in 2023, given the slowdown in the global economy?
Retail flows are likely to slow down this year due to many reasons. One of the major reasons would be the lackluster performance of a majority of mutual fund schemes that had got disproportionate flows in the previous two years. Many of the funds could not manage single digit returns. In this context as fixed income returns have crossed 7 percent, many investors might be tempted to re-allocate. High inflation also reduces investible surplus and that could also have an impact.
2. Where is the market headed in the first half of 2023 against a backdrop of rising interest rates, recession concerns, geopolitical challenges, and China's COVID-19 worries?
The broader logic for most to be negative for the first half of 2023 is related to the view that the slowdown and fall in corporate earnings, due to higher interest rates and slower growth, is not completely built into the stock markets and as earnings flow through, we will see more sell-offs.
There is merit in these arguments, however, we have already seen a decimation of growth stocks in many parts of the world with the technology heavy Nasdaq Composite near its 52-week low and stocks like Amazon, Meta, Microsoft, Alphabet etc. down 40 percent for this (last) year and Tesla down 70 percent plus. Also, as expected, we have seen a huge sell-off in cryptocurrencies as interest rates have gone up. In India also, we have seen most of the loss-making new generation companies sell off big time as the focus shifted to profits.
As a contrarian investor, I would be more positively inclined towards the first half of 2023 as such a huge consensus rarely plays out.
3. In 2023, would the environment be more favourable for emerging markets?
Emerging markets are trading at valuations that are at historic lows and as inflation and interest rates peak, we should see that interest towards emerging markets will improve. Overall, emerging markets should do much better in 2023. Indian markets have not corrected much but globally the correction across emerging markets has been severe and as such makes a strong case for a bounce-back in 2023.
4. Which sectors and stocks do you think will perform best in 2023?
Domestic economy-linked stocks are likely to do better than globally-linked stocks. As such sectors like automobiles, auto ancillaries, capital goods, infrastructure etc. are likely to do much better.
Consumer stocks could also see a revival sometime during the year. We need to be cautious on technology and commodity stocks at this stage. They might become attractive at some stage.
5. Nifty IT, Nifty Media, and Nifty Realty have been amongst the laggards in 2022, are these sectors likely to pick up in 2023?
Realty should bottom out at some stage. Media stocks do not have any big story playing for them. Information technology (IT) is more interesting where the downturn is likely to be cyclical and as such sometime during 2023 these companies will provide buying opportunities. Finally, these companies are strong dividend-paying and cash-generating companies.
6. What are your expectation from the Q3FY23 earnings? Which are the sectors expected to do well?
Technology and commodity company results should be muted. Consumer demand has been suppressed so here also outlook is not very strong. Financials should report strong results.
7. What are your overall expectations for the upcoming union Budget. Which sectors do you believe the government will prioritise in its Budget?
Since this is the last full budget before the general elections, it is likely to be populist. It is important there is no significant socialist bent and capital investment is not put on the backburner as it could create negative sentiment in the stock markets.
Indian market valuations are at a record premium to emerging markets and for that to sustain we need investor friendly measures.
8. What are your Budget expectations with regards to government's capital infusion for the public sector undertaking (PSU) banks, considering the fact that all the PSU banks have reported decent net profit?
PSU banks don’t need any further infusion from the government.
9. Will the credit growth sustain in 2023 if RBI continues its hawkish stance?
When interest rates move up, the credit growth slows down and it is likely this time also. Banks might also turn more cautious. Overall, 12-14% growth is likely.
10. Any advice for new investors in 2023?
The most talked-about and discussed words today are recession, inflation, interest rates, COVID-19 resurgence, earnings slump, etc. This is hardly a recipe for negativity overall for 2023.
I look forward to 2023 with caution as well as optimism. The combination will create opportunities to invest in a way where we can do well. There is nothing like consistently outperforming markets.
Fund management styles will outperform at some points of time and will lead to underperformance at other times. How much we can outperform when our style works and how less we underperform when it doesn’t determine long term performance.
India is now mainstream due to our sheer size and democracy; longer term foreign investors and multinational companies (MNC’s) will have to allocate more and more to India which will be good for all equity investors in the long run. India is a country of huge number of unique listed businesses, which can be invested into. Retail investors should be cautiously optimistic.