2023: New Year - New Challenges and Opportunities - Year of Turbulence and Volatility
2023: New Year - New Challenges and Opportunities - Year of Turbulence and Volatility

2023: New Year - New Challenges and Opportunities - Year of Turbulence and Volatility

2023: New Year - New Challenges and Opportunities - Year of Turbulence and Volatility

 2023: Year of Strength and Consolidation for the Decoupled Indian Stock Market.

 The year 2023, a challenging year for stock markets around the world. With recession fears across the globe overall market outlook globally is muted resulting in overall risk-off environment and flight to safety. However, with the resilient Indian economy and decoupled stock market, the Sensex could well end 2023 with a 10% gain ~ 68500 after touching lows of 54000, resulting in amendment volatility and turbulence.

 The year 2022 has been a challenging year for the stock markets around the world. With inflation at multi decade high across the world, Central Banks started increasing interest rates to curb inflation and thereby developed economies around the world staring at a possible recession in 2023. The Indian economy has been performing well and has recovered well post the pandemic.

 As we enter 2023, a year of 9 state elections leading to the run-up of general election in 2024, the Government will increase and spend more on overall infra projects across sectors of railway, road and defence; resulting in overall higher GDP and overall spend and greater employment creation. The PLI schemes across manufacturing sector has already started seeing major benefit, resulting in Indian manufactures playing a vital role in overall supply chain and manufacturing for the world. The massive push and urge of the Government towards sustainability and renewable energy has resulted in large amounts of investments from foreign as well as domestic firms. The Electrical Vehicle industry has also picked up in major manner resulting in large amounts of investments flowing into the sector leading to overall growth.

 The overall silver lining for the Indian economy is inflation on a relative basis is around 7%, which the Indian economy has witnessed in the past and at these levels may not pose a problem for overall growth in the Indian economy. At the same time the Indian economy has a few headwinds that it is facing at present and will continue to face in the next couple of quarters especially on the revenue expenditure will exceed the budgetary estimates mainly due to the large subsides and MNREGA. Current account turned to deficit (1.2% of GDP) in FY22 and likely to widen further to 3.3% of GDP in FY23 and come in at ~3% in FY24 amid higher trade deficit. Thereby creating further pressure for the Indian Rupee. Thereby resulting in the Rupee to further depreciate and test levels of 84-85 / USD.

 The US economy getting into recession would add further pressure on Balance of Payment, thereby adding overall macro-economic pressure to the Indian economy.

 The year 2023, could well be divide into 2 parts, the first part of the year wherein the recession in US and Europe would affect the global economy and have a spill over across the Indian industries as a large part of the Indian economy is interconnected to the global economy especially the IT sector, which is a large part of the overall Indian economy. The second half would be dominated by the various state elections wherein electoral populism will triumph economic rational. The Government spending would be at its peak and it would give big boost to the infrastructure sector and overall capital formation thereby leading to higher earnings and overall profitability for companies thereby giving a big boost to the stocks resulting in a decoupled Indian stock market.

 The kay factors to watch out for in 2023 that would shape the world economy and the Indian stock market are as follows:

 ·      COVID Count

 After almost 2 ½ years, the world seems a better place, wherein COVID fears were dying out and life was getting back to normalcy. However, the recent surge in COVID cases in China and Japan, have emerged as a major scare for the markets as well as Government authorities. Imposition of any curbs once again would have a major effect on the overall business sentiment and would get reflected in the markets.

 ·      Stability of Swiss Franc

 The problems faced at Credit Suisse have resulted in huge demands for USD. The Swiss National Bank drew over USD 6.6 billion from Feds currency swap line facility, resulting in Swiss Franc being blown out of levels not seen in years. This well could be a wild card that disrupts the world economy in 2023.

 ·      9 State Elections

 The year 2023, will witness 9 state elections, of which large and major states like Rajasthan, Madhya Pradesh, Karnataka, Telangana and Chhattisgarh go to polls. The result of these state elections will lay the ground for the mega general elections 2024. If the results are against the public anticipation, the race to polls 2024 will be wide open thereby spooking the markets and there would be a lot of turbulence and uncertainty.

 ·      Valuations

 The Indian stock markets have always been expensive as compared to its peers. However, valuations in many stocks and IPOs, have reached unreasonable levels thereby resulting in possible correction for the markets.

 ·      Inflation in India

 With China moving away from the zero COVID policy and opening up the economy inspite of the COVID cases, thereby resulting in surge in crude and prices of other commodities, which could add further pressure to inflation and may result in further interest rate hikes. The RBI has already hiked interest rates to a large extent in 2022, further hike would have an effect on the small and medium businesses and economy on the whole. The raise in effective mortgage rates from 6% to 9% has already resulted an impact being felt in the Real Estate sector in terms of overall bookings and payments for residential apartments.

 The first half of 2023 would rather be turbulent and very volatile. With the markets going down and fair amount of correction will be witnessed in Mid and Small cap shares as well, thereby resulting in a substantial correction in the headline Index like the Sensex, wherein the Sensex would witness lows of 54,000. Post the turbulence witnessed in the world markets, with the strength that the Indian economy is demonstrating the markets would well rebound. With the push in terms of overall government spending, the markets would well rebound and whiteness a decent come back in the second half of the year, thereby closing the year almost 10% above the current levels. Thereby many stocks will demonstrate lot of volatility and well could hit lifetime highs and lows in the same calendar year.

 Investors should be cautious and not panic in the near term correction in the Indian markets. Gold as an asset class will perform fairly well most part of 2023. Hence the key for investors should be to maintain a balanced portfolio across asset classes including gold. The long term growth story for India has just started and more wealth will be created in the next 10 years than in the last 75 years and this decade belongs to India indeed. Hence investors should not panic with a near term correction in the Indian markets and look at investing on a 3 to 5 year time horizon.

 Wishing all the readers a very Happy New Year and lots of Wealth Creation in 2023.

 Dr. Farzan Ghadially.

Uday Sanghani

Co-Chairman, Partner, CXO, Founder- Global Digital Leader - AI, Digital l Co-Chairman IMC International Business,Digital Committee l NASSCOM GCC's |Advisory Panel- Institutes | Industry Influencer | GCC's & SME's Advisor

2y

Thank you for sharing Dr. Farzan Ghadially! Do you agree the dip is a good buying opportunity ? What about the Digital assets like Cryptocurrencies on hand, NFT valuations ?

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