By Manish Jain
Year 2022 has been quite an eventful year, with the markets witnessing a roller coaster ride and at the end of all the ups and downs, we are staring at a meagre ~6% returns in INR terms. The Russia-Ukraine war, which resulted in rising commodity prices and an energy crisis in the EU region, the unprecedented pace of tightening from all the global central banks, Covid-19 resurgence in China are just a few examples of the macro-economic disruptions that the global equity markets have endured. However, as we usher in 2023, it looks like most of these issues are now behind us and the outlook from a growth perspective looks significantly better.
We do expect the Indian equity markets to bounce back strongly and deliver handsome returns. Some of the key reasons that make us optimistic and need to be watched out for are as below:
End of the tightening cycle: The latest inflation data (for both the USA and India) have been quite encouraging and make us believe that global inflation has peaked out. In India, with CPI inflation falling to 5.9%, the real policy rates are now positive. This makes us believe that we are now at the end of the tightening cycle and that should be good news for equities especially, emerging markets like India. We would expect the RBI
Earnings growth trajectory to pick up: FY23 is expected to witness a strong earnings growth acceleration mainly on account of margin expansion. Commodity prices (including oil & gas) have witnessed material correction that combined with meaningful pricing action (across sectors) witnessed in the current year, should enable the Nifty earnings growth to pick up from 11-13% in FY22 to ~15% in FY23. This strong growth trajectory makes risk-reward quite favourable and makes for a compelling case to go long on Indian equities.
Rural growth resurgence: Over the last couple of years, a combination of rising WPI inflation and crop damage due to unseasonal rains have meant that rural demand has remained weak, and that has impacted growth and sentiments. However, several factors (such as encouraging early sowing data from rabi crop, softening WPI inflation, and rising rural consumer sentiment) make us believe that a turnaround is just around the corner. This should auger quite well for the demand and the overall economy in general.
Accelerated government spending: In the run-up to the 2024 elections, we would expect government spending to accelerate especially now that the fiscal situation is relatively better than expected. We would expect the upcoming budget to lay special emphasis on rural growth, infrastructure, affordable housing, and agriculture. This would ensure that the credit growth remains strong in double digits (even on a high base) in 2023.
So, overall we believe that macro-economy-wise, the worst is behind us, and the situation looks to have stabilized. Softening export demand, depreciating INR, and current account deficit problems, are now all behind us. We would expect the FPI flow into India to remain strong and the equity markets to show a smart rebound. We remain bullish on Banks, Auto, IT Services, and discretionary consumption and maintain a bearish outlook on consumer staples.
(Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)