Updated: Dec 16, 2022, 10:36pm
It’s been a surprisingly stellar year at the stock market for India with key indices both the NIFTY 50 and BSE Sensex clocking their all-time highs early December. Chiming in domestic investors’ chorus on the incomprehensible disconnect between how the Indian markets perform and the economic parameters on the ground, stock prices have risen dramatically and have set the ball rolling to welcome 2023.
The war between Russia and Ukraine leading to fluctuations in crude oil prices, weakness of the rupee, pandemic-induced global supply chain challenges and the staggering inflation well beyond the consumer price index (CPI) inflation of 4% within a band of +/- 2% range set by the Reserve Bank of India are factors that were set to break the Indian stock market indices’ backs. It has instead been the reverse.
As on Dec. 15, 2022, NIFTY 50 closed at 18,269 and Sensex closed at 61,337.81. Both the indices hit their all-time high of 18,887.60 and 63,583.07 respectively on Dec.1. Experts say the road ahead may be full of surprises and putting one’s skill and perseverance in action could help investors build a solid financial corpus.
The year 2022 has been marred by a series of challenging phenomena including inflation, high interest rates, absurd corporate valuations and geopolitical uncertainties led by the fallout of the Russia-Ukraine war, headwinds in China both on account of the country’s zero covid-tolerance policy and political tension with Taiwan—all of which have led to tighter financial conditions and weakened economic activity across the world.
India too hasn’t remained insulated from these macro developments and the country is likely to be impacted further in 2023, albeit to a lesser extent.
After a year of price and time consolidation, fears of a market sell-off have been flagged by multiple stock market participants if the risk of recession looms and the proxy war between the U.S. and Russia over Russia’s invasion of Ukraine continues. Both these events have shaken the global financial markets throughout 2022 and are bound to impact market participants in 2023.
Significant headwinds for Indian investors to watch out for continue to be the expanding trade deficit, persistent foreign institutional investors’ outflows, volatile currency fluctuations and constricting liquidity conditions.
India’s greatest strength lies in its domestic consumption, amply supported by a young and large working population with disposable incomes and boosting business confidence. The opportunities for growth and investment are ample at present and likely to multiply every passing year.
While near-term impact due to global issues could persist and induce volatility, investors with a horizon of at least two to three years would be well rewarded, believes Tejas Khoday, the co-founder of FYERS.
For instance, a few years ago, the participation of retail investors in the Indian capital market was abysmal, with less than two crore demat accounts. Post-covid, the landscape has changed dramatically, as demat account openings were clocking more than 10 lakh a month. Currently, the total demat accounts stand at 10.43 crore.
Due to benign interest rates in earlier years, investors sought riskier assets through direct equity or systematic investment plans (SIPs) of mutual funds. SIP’s annual contribution increased from INR 43,921 crore in FY17 to INR 1 lakh crore by FY20 and currently registering an inflow of INR 12,500 crore on average per month. In October 2022, the SIP inflow was at the highest level of Rs. 13,000 crores, up 30% (YoY). Total SIP assets under management (AUM) stand at INR 6.64 lakh crore.
In FY22, retail investors infused INR 1.6 lakh crore in direct equities. Consequently, retail investors’ holding in the National Stock Exchange or NSE-listed universe as of March 31, 2022, rose to a 15-year high of 9.7%.
It would be safe to say retail investors have developed a degree of faith in building long-term portfolios and equity investing is slowly becoming a part and parcel of an Indian investor’s way of saving money and thinking about long-term wealth creation.
Majority of the experts think consumer sentiment will see an uptick in 2023 and the Indian stock markets performance will be stellar in key areas including banking, automobiles, real estate and company stocks with strong fundamentals.
Nikhil Kamath, the co-founder of True Beacon and Zerodha, says as a result of an (expected) relaxed economic tightening and the fact that bond prices and yields move in opposite directions, there is enough room for investment-grade bonds, mortgage-backed securities and other instruments influenced by interest rates to rise in value next year. But an increase in debt defaults would alarm investors looking to invest heavily in the fixed-income markets, especially in the corporate bonds segment.
Kamath sees India’s current account deficit widened to $23.9 billion, or 2.8% of GDP, and the U.S. market contributing anywhere between 40% to 75% of the revenues earned by Indian IT companies, potential U.S. and global recessions pose a threat to India’s IT growth.
B Gopakumar, MD and CEO of Axis Securities, sees the consumer space witnessing a strong revival, and many categories normalizing to pre-covid levels with a structural uptick in multiple sub-segments. “QSR space is well-placed to deliver superior returns,” says Gopakumar.
He expects housing and banking to be crucial sectors in 2023 due to their improved economic outlook and pick-up in credit growth. He also expects affordable housing to get a further push in the upcoming Budget.
Gopakumar recommends investors to avoid export-oriented themes till global growth is back on track.
Saurabh S. Jain, MD of SSJ Finance & Securities, too believes consumer sentiment is set to improve in 2023 and advises investors to invest in companies with good prospects, reasonable valuations, and sound management pedigree.
“We will also advise investors to stay away from commodity manufacturing companies, at least in the first half of 2023,” says Jain.
Nikhil Aggarwal, the founder of Grip Invest, advises investors to look out for a good portfolio mix of debt and equity.
For debt, investment-grade-rated instruments should be on top of the list. With interest rates at peak, it is a good time to lock in a yield for your safer debt instruments. In particular, look out for corporate bonds issued by established companies with strong fundamentals. “There is a new stream of alternate asset classes like lease financing and inventory financing, which are also providing investors with great risk-reward ratios and are helping mitigate the volatility of equity markets,” says Aggarwal.
For equity, Aggarwal recommends going with large and mid-cap stocks, which are more value-based in nature than growth-based. “Companies with stronger fundamentals and less cyclicity are expected to outperform in case of any unexpected turmoil, he says.
Ankit Gupta, founder of BondsIndia.com advises investors to focus on quality stocks, i.e., companies having growing revenue and growth prospects over momentum stocks. “Investors should also look out for USD and rate sensitive stocks as USD is expected to come down”, says Gupta.
Khoday says capital goods, infrastructure, speciality chemicals, and pharma could offer renewed investment opportunities in FY23.
As a stock market participant, it is crucial to remember investing in the stock market is risky and you could lose almost all of your invested capital or your gains can simply evaporate. To take a calculated risk on your investment, it is important to research and understand the financial instrument in which you are parking your money. Taking the help of a financial advisor could also help you hedge your risk to a certain degree and aid you in making an informed investment decision.
Aashika is the India Editor for Forbes Advisor. Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.