ETMarkets Smart Talk: Expensive valuations, CAD, currency among top headwinds for Indian markets in 2023

In an interview with ETMarkets, Jain said: “One should also watch out for ballooning trade deficits, volatile currency fluctuations, constricting liquidity conditions, geopolitical uncertainties, and persistent FPI outflows,” Edited excerpts:

How do you sum up the year 2022 and where do you see markets headed in the year 2023?
From Russia’s invasion of Ukraine and the fastest rate-hiking cycle by the US Federal Reserve in a generation to the weakening rupee, staggering inflation, and Indian stock markets touching an all-time high, 2022 sure was an eventful year with no dull moments.

During the year, stock prices have risen dramatically and have set the ball rolling to welcome 2023.

For global markets, with a fall in activity due to inflation, the energy crisis, tight monetary policies and increased geopolitical risks, 2023 will probably be a challenging year.

The European economies seem fragile because of the major challenges arising from the energy crisis. Developed countries seem to be on the verge of recession while emerging countries will see some consolidation. Slowing global growth will weigh on emerging markets like India and we expect volatility.

As far as India is concerned, we need to keep a close watch on global COVID development and rainfall. Though, we had good rainfall in 2022, the higher input cost of raw materials and labour costs has left lesser surpluses with the farmers.

The rural economy needs to be robust for healthy economic growth in India.

As we close another year of gains in equity markets – do you see the bull run continuing in 2023. Which are the headwinds that one should be aware of?
The major headwind is expensive valuations. Post some corrections with current profit taking Indian markets will again be attractive with decent valuations.

One should also watch out for ballooning trade deficits, volatile currency fluctuations, constricting liquidity conditions, geopolitical uncertainties, and persistent FPI outflows.

India still being an agrarian economy, sufficient rainfall is important for economic growth to continue. In FY23, inflation is expected to tame down with various measures taken by RBI. Interest rate hikes are also expected to come down followed by lower inflation. Once both these two factors stabilize, we will see renewed investment interest in India.

Post-covid, equity investing has gained popularity among Indians as a way of saving money and a means for wealth generation. This will augment well for the Indian markets.

New Year will also mark the beginning of Budget 2023 preparations. What are your expectations from Budget 2023?
Budget needs to focus on job creation. If job creation remains robust, economic momentum will continue. In the last few years, rich people have become richer. The government needs to focus on the lower strata of people to be economically independent. Education and healthcare could be

areas.

Which sectors will be in focus ahead of the Budget? We have already seen some rally playing out in sectors like Infra, Rail etc.
Infrastructure and railways, being the backbone of the economy, will continue to be in focus. There will be a focus on green energy, fertilizers (alternatives to imports of urea), reducing imports of various engineering goods, compressors, chips, and automotive components.

Which themes will do well in 2023 and why?
We expect consumer space to see a revival in 2023 and that will benefit the housing, banking, and automobile sectors. Infrastructure, defence, and metals will continue to do well. However, investors need to keep valuations in mind all the time.

COVID is rising again – do you think it could well turn out to be the next trigger for selloff in equity markets?
As of now, it has certainly hurt the sentiment, without any specific concerning numbers. However, expensive valuations also have led to profit-taking in Indian markets. If there is any sudden spike in the number of Covid cases, it will certainly have some impact.

However, as a nation, India handled years 20 and 21 far better, though we are a highly populous country. Higher valuation is the key reason for the current sell-off in equity markets.

Amid recessionary fears across the globe how do you see India stack up against all odds?
India is relatively better placed owing to its inherent strengths. There are many businesses that are domestically driven without too much

on imports or exports. Retail chains, food chains, the footwear industry, education, and FMCG (selective) are some of such areas.

The government has taken a lot of measures to reduce reliance on imports in various sectors. These measures will yield results for India in times to come.

India has a relatively young and hardworking population, which will help in the future growth of India & drive domestic demand.

Your message to investors for 2023?
Although we may see some headwinds in 2023; overall, the Indian markets are bullish. India’s greatest strength lies in its domestic consumption, supported by a large young working population with disposable incomes and boosting business confidence.

I’ve always believed in the Indian growth story for the same reasons.

Investors should not panic in bear markets but see it as an opportunity. Make sure to diversify your portfolio and only invest in companies with sound management pedigree and good fundamentals.

In 2023, I believe that the markets may show some weakness in the first quarter of the year. However, from March we expect the markets to bounce back on the back of cooler inflation and crude prices.

It is a good time to invest when the chips are down. Being greedy when everyone is fearful is a good way to grow wealth when the markets rebound. Be choosy and pick good companies at strong valuations.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)