However, investors must brace for a rollercoaster ride amid concerns over a looming global downturn and rich stock valuations, said the respondents in the poll of 33 money managers and analysts at various brokerages.
While 42% said they expect the Nifty to trade between 19,000 and 20,000 next year, 33% exuded even more optimism, saying they anticipate the Nifty to cross 20,000.
The Nifty closed at 18,132.30 on Tuesday, up 0.65% from the previous close. If the index touches 19,000, it would spell an increase of 4.8%, whereas the 20,000 mark would yield 10.3% returns over Tuesday’s closing of 18,132.30.
For the Sensex, 55% of the respondents said they expect a trading range of 65,000-70,000 next year, while 20% said they expect the index to trade between 60,000 and 65,000. Money managers said the recent outperformance of Indian equities could mean that the country’s stock markets could be an underperformer in the region.
“There are huge expectations of performance from companies and a lot of the 2024 valuations have been factored into the market at this juncture,” said Nilesh Shah, managing director,
Asset Management Co. “That leaves little room for valuation expansion unless the valuations between India and other cheaper countries narrow by the second half of 2023.”
Benchmark indices might be on course to end 2022 with gains amid wild swings while major developed and emerging markets have seen sizable declines.
‘Moderate Return Expectations in 2023’
So far this year, the Nifty has gained 2.9% and the Sensex less than a percent. The US markets are down 15-25% this year, and China’s Shanghai Composite index has lost about 15% of its value since the start of 2022.
The Nifty’s current level translates into 21-22 times the one-year forward price-to-earnings – a popular valuation measure. In contrast, the MSCI Emerging Markets (EM) index trades about 11-12 times.
“Most near-term positives seem to have been factored in the valuations and investors need to moderate their return expectations in 2023,” said Vineet Sambre, head (equities), DSP Mutual Fund. “The yield gap between bonds and equity has expanded over 200 bps (basis points) which could lead to moderate equity returns over next one year going by the historical averages.” A basis point is a hundredth of a percentage point.
The poll respondents highlighted that rising interest rates in the US and other markets, and a fresh bout of Covid-19 infections across the world, are risks to the equity markets.
The markets have been on the edge of late over concerns about yet another resurgence of Covid-19 and the continued hawkishness by global central banks, especially after the shift in the Bank of Japan’s ultra-accommodative monetary policy.
Large Cap Stocks Preferred
“While strategic foreign fund allocations to India will continue, the tactical allocations may flow to other cheaper Asian markets because India’s valuations are rich,” said Shah.
The poll showed 62% of the respondents still prefer to invest in equities, with nearly half of them inclined towards large cap stocks.
“Given that midcaps are at a small premium we prefer large caps and small caps,” said Sambre.
Banking Sector Top Choice
Banks remain the most preferred picks for investors. A combination of factors such as improving credit growth, expansion in margins, healthier balance sheets and attractive valuations have attracted investors.
The Bank Nifty, a gauge of top 12 lenders, made new highs a fortnight ago. The index has given nearly 20% returns since the start of 2022.
“The banking sector has seen a clean-up in its asset quality with system GNPA (gross non-performing assets) ratio falling from 11.5% in FY18 to 5.9% in FY22,” said Sambre.
Besides banks, investors prefer sectors such as automobiles, IT services and capital goods companies, according to the poll.
A fourth of the respondents said they preferred to invest in fixed income instruments while 13% said they would also include gold in their portfolios.
