'Investors should hold equity assets for 3 to 5 years.'
Can investors expect better returns in 2023?
Which sectors are likely to do better if we are hit by a recession?
"We anticipate that the outperformance of Indian equities will continue in 2023, with stronger fundamentals and robust domestic inflows into the equity market. However, we would advise investors to temper their return expectations throughout the year," Anand Rathi, founder and Chairman of Anand Rathi Group, tells Prasanna D Zore/Rediff.com.
The Nifty 50 gained just about 1,000 points through January-December 2022 providing a lacklustre return of 5.6 per cent for the calendar year.
Are Indian equities heading into a stormy 2023, or, will their return be as lacklustre as 2022?
Despite the low equity return in 2022, Indian stocks performed better than the majority of other major stocks.
Additionally, one should not lose sight of the fact that Nifty 50 has provided positive returns for seven consecutive years since 2016, a feat never before accomplished by the index.
With a very high cost of capital, a significant growth slowdown, and elevated geopolitical uncertainties, it is unlikely that globally equities will perform well in 2023.
We anticipate that the outperformance of Indian equities will continue in 2023, with stronger fundamentals and robust domestic inflows into the equity market. However, we would advise investors to temper their return expectations throughout the year.
What are the sectors/industries that are likely to do better this year even if a recession sets in? Why?
There is evidence that the disparity between rural and urban consumption is narrowing. In light of the general underperformance of consumer-related industries in 2022, we anticipate that these segments will perform better in 2023.
We anticipate that the government will continue to prioritise public investments, particularly infrastructure investments. With this, we maintain our optimistic outlook on infrastructure-related industries. Cement would also benefit from this development.
US growth deceleration and high wage cost pressures are likely benefit Indian IT companies. We anticipate revenue declines to reverse and margin expansion to continue for Indian IT. This makes us optimistic regarding Indian IT companies.
What would be your advice to investors?
We always advise our clients to increase their assets allocation to equity market. Specifically, retail investor participation in equity derivative segments frequently results in substantial losses.
According to a recently published study by the SEBI, 90 per cent of retail investors who trade equity derivatives lose money. Therefore, I would strongly advise retail investors to make long term investment in equity.
Instead of attempting to time the market, retail investors should continue to hold equity assets for long term of 3 to 5 years.
With higher returns than other assets, and the compounding of such returns, equities generate wealth. I would advise retail investors to follow this path.
Are there any indications of the US Federal Reserve relaxing its monetary tightening spree that began in Feb-March 2022 when the rate was 0.375 per cent and which reached 4.375 in Dec 2022?
There are clear indications that the inflation rate in the United States has levelled off, despite the fact that the current level is substantially higher than historical norms.
While there are also indications of a demand and growth slowdown, the unexpected resilience of the US labour market prevents the Federal Reserve from adopting a more dovish stance.
While we do not anticipate an immediate halt to monetary tightening or a reversal of rate hikes in 2023, we do anticipate a slower pace of monetary tightening in the United States.
Is the global economy out of the recessionary woods? What's your reading of the Indian economy? How well are we prepared to face an economic recession?
Despite widespread concerns, the average global growth till the quarter ending September 2022 remained above the pre-pandemic averages.
While a technical recession in Europe is almost a foregone conclusion and similar possibility for the US cannot be ruled out, the possibility of a global recession remains low. Moreover, negative growth in Europe and the possible negative growth in the US are likely to be short lived.
Most commentators feel that India is the brightest spot in the otherwise gloomy global outlook. Inflation in India has come down substantially and no major tightening in monetary policy seems to be on cards. Till the quarter ending September 2022, both fixed investment and private consumption did well.
Consequently, we expect the Indian economy to do much better than the peers during the current year.
There have been huge job cuts undertaken by bellwether IT companies in the US, the Russia-Ukraine conflict is far from showing any signs of ending soon, commodity prices including oil and gold are on an upswing and yet India seems to have holding itself quite well amid global turmoil. What are the chances that India too would soon catch the recession cold?
As a member of the interconnected global economy, India cannot remain untouched by global events.
Rapid monetary tightening and withdrawal of liquidity across the globe, wide exchange rate fluctuations, reduction of cross-border capital flows, rising protectionist tendencies by the major countries, and the increase in geopolitical unpredictability are also influencing India.
Yet, India's domestic demand is a significant portion of its total demand. Along with strong domestic fundamentals, this factor would help India navigate the current environment better than the majority of other nations.
