Kotak Securities expects the Indian economy to do well in the medium term, supported by a favourable policy environment.
However, macroeconomic headwinds persist, and the fight against inflation is far from over.
Based on this, the brokerage’s base case target for the Nifty50 is 18717 points in 2023. However, if India continues to show resilience or global concerns ebb, the benchmark index could reach 20919 points in a bull case scenario.
“India’s economic and earnings recovery, coupled with the capital expenditure cycle (including PLI scheme), is expected to keep Indian markets attractive over the long term,” said Jaideep Hansraj, MD & CEO of Kotak Securities.
The base case target for the 50-stock index implies a potential upside of just 2.5% from the current levels.
This is partly also because of the stretched valuations. Currently, India is the most expensive market within the emerging market pack. It is trading at close to 20 times its one-year forward earnings.
The rally in domestic equities has been despite India seeing record outflows of Rs 1.25 lakh crore from foreign portfolio investors. This is because the outflows have been offset by the record inflows of close to Rs 1.8 lakh crore from domestic institutional investors.
FIIs turned net buyers of equities since November, and Kotak Securities does expect sustained flows from them in the next year.
Although India’s growth story remains bright, there are some downside risks to the same from the global arena, the brokerage said.
“Downside risks are increasing from global factors and the lagged impact of monetary tightening. Moreover, private sector capex is likely to be delayed given the uncertain global and domestic demand conditions,” Kotak Securities said.
Factoring in the second quarter GDP numbers, the brokerage maintained its GDP growth estimates for FY23 and FY24 at 6.8% and 6.0%, respectively, with downside risks.
The other risk is inflation which remains a worry, indicated by most central banks. At its December policy meeting, the Reserve Bank of India (RBI) highlighted the concerns about the persistence of elevated core inflation.
This indicates RBI’s hawkish bias, given the concerns about the domestic inflation trajectory.
Given the uncertain global outlook, risks from volatile crude oil prices, elevated domestic core inflation, pass-through of input costs to prices, increasing the likelihood of a global recession, and the lagged impact of monetary policy tightening will be the key monitorable, Kotak Securities said.
Crude prices are expected to remain volatile in 2023 as the European Union will have to find a replacement for Russian crude while economic activity remains subdued.
“We, however, do expect a sustained decline unless supply risks improve or there are signs of a significant slowdown in demand,” the brokerage said.
The brokerage expects the WTI crude oil to trade in a range of $60-$100 a barrel and
crude in the Rs 4,700-8,300 range.
Meanwhile, the yellow metal is seen glittering in 2023 as investors will look at moving into haven assets in the backdrop of headwinds such as recession, higher inflation, a falling dollar, and a highly uncertain geo-political situation.
Kotak Securities expects gold in the international market to trade in a range of $1670-2000 per ounce in 2023. On the MCX, gold is seen trading in the range of Rs 48,500-60,000 per 10 grams.
Given that macroeconomic headwinds persist globally, rupee and almost all currencies are expected to see huge volatility in 2023.
In 2022, the dollar rallied nearly 10% against the rupee to an all-time high of 83.25 in the spot market.
“In 2023, we could see prices form a sideways to the upward range. We expect an overall range of 79.50 and 86.50 spot in 2023,” Kotak said.