By Manish Jain
2022 was quite an eventful year for the global equity markets, with several macro events playing out one after the other starting with the Russia-Ukraine war, the Fed tightening, the global growth slowdown, the currency crisis and the commodity price volatility. This took a toll on the equity markets, and almost all the major global indices yielded negative returns.
India continued to shine though and was one of the best-performing markets in the world. We would not use the word de-coupled but the Indian economy did prove to be largely insulated from the global growth pressures. India managed to weather the storm quite effectively, with the RBI doing an amazing job of managing inflation through a pro-active tightening cycle and yet did manage to minimize the growth impact. We will now witness India being the fastest-growing economy amongst all the major world economies.
However, the biggest issue we faced last year was that the broader markets became very value oriented. The correlation between growth and returns was distinctly broken, proving to be the bane for investors at large. While FIIs were selling growth, DIIs were buying value. This meant that PSU banks, metals, and FMCG stocks were amongst the best-performing sectors while IT continued to languish at the bottom.
The key question that is running in the minds of almost all investors right now, at the dawn of 2023, is that – Will this growth-value paradigm shift? Will 2023 be any different than 2022? We believe that it will be, and 2023 will witness meritocracy return in a big way and growth-oriented stocks will stage a comeback in a big way.
The first thing that drives our confidence is that most macroeconomic concerns now seem to be alleviating. Inflation seems to have peaked out, rural growth is stabilising, the worst of the commodity pressure is now behind us and the fiscal situation seems to be well under control. Typically when this happens, the focus of the markets shifts from macro to micro.
The tightening cycle seems to be coming to an end and we believe after one more 25 bps repo rate hike, RBI will hit a pause button and that should come as a big relief to the broader markets. The only caveat here is that the rate cut cycle is still a long way away, and despite inflation peaking, we believe rates will witness a longish plateau.
Earnings growth should likely accelerate given the commodity tailwind. We expect Nifty to deliver ~15% EPS growth in FY24, a significant pick-up in trajectory from FY23.
Last but certainly not least, with FII flows now coming back to the markets (and DII’s witnessing a net outflow), we expect the growth orientation to stage a comeback in a big way. IT stocks would be our key bet this year, followed by Auto and banks, while we would remain underweight on FMCG.
(Manish Jain is Fund Manager at Coffee Can PMS, Ambit Asset Management. Views expressed are the author’s own. Please consult your financial advisor before investing.)