Will 2023 be another blockbuster year for D-Street? Market mavens are divided


Following a stellar run by benchmark indices in November that made investors richer by around Rs 9 lakh crore, the chorus from both bull and bear camps on Dalal Street has grown louder. The first one has been enjoying an early Santa rally and hoping that benchmarks will advance further, while the other is waiting for a bloodbath following a sharp run.

It took Sensex 14 months to move from 60,000 to the 63,000 milestone. While this bull run made investors very happy, most on the Street are wondering if they should chase the markets now or wait and watch for the chips to fall.

Some widely-tracked market mavens believe that the ongoing rally has more steam left as inflation has started to cool off and the possibility of aggressive rate hikes is waning.

An up-trending profit cycle, a likely peak in short rates in Q12023 and ebbing global macro risks relative to 2022 make the case for absolute upside to Indian stocks, said Morgan Stanley’s Ridham Desai in a note on India’s equity strategy outlook. Though he was quick to add that India’s relative gains may take a breather in 2023.

BSE Sensex is up 5.7% on a YTD basis versus an over 17% fall seen in the S&P 500 index, 5.5% in Nikkei and just a 0.22% rise in the FTSE 100 index.

Often touted as Big Bear on Dalal Street, market veteran Shankar Sharma also seems to be backing the bull’s camp for now. “Inflation was obviously a problem because of which we corrected substantially.

I think that risk is now behind us. I do not think we are going to get major shocks on the crude oil front as well,” he said.

Sharma also doesn’t see any major derailment risk for the bull market. There will be, of course, corrections here and there, but every single dip from here on in India is an absolute and total screaming buy, he said.

In the last few months, overseas investors have also stepped up their investments in Indian equities, helping power benchmarks to record highs. According to NSDL data, FPIs pumped in over Rs 36,200 crore in the equities in November alone.

There are positive factors favouring India, such as relatively benign inflation compared to world economies, strong domestic growth, robust consumption trends, strong earnings growth expectations, and the easing of commodity prices in the recent months, with a sharp decline in brent crude prices from $110 to now below $80, is like a cherry on the cake.

These conducive factors have helped India outperform other emerging and developed markets and taken valuations above historic levels.

The only factor that is not so comforting for some experts is valuations. Nifty50 is currently trading at over 22 times its 1-year forward earnings, which is way above the historical average of about 14-15 times.

Zerodha co-founder Nikhil Kamath said that if you were to map historically how well Indian markets have done and let’s use something like a Buffett indicator and map m-cap to the earnings, I feel we sit in very expensive territory. We are around 85% of how expensive we were at the peak and that is a scary place to be, Kamath told in an ET NOW interview.

In the recent months, Indian market valuation over China has reached unprecedented levels, said Chris Wood of Jefferies.

In China, investors faced a lot of body blows and so tactically, there is definitely a good case to reduce India and add to China but structurally, India is the best story in a 10-year view in Asian emerging market equities, Wood added.

Global brokerages, including Morgan Stanley and JPMorgan, have recently joined the Wall Street chorus and are increasingly turning bullish on Chinese stocks after almost two years of reopening bullishness. This, many believe, can be a worry for D-Street in the long run as it can quickly sway FPI money back to Chinese markets.

Credit Suisse’s India Equity Strategist

Mishra also doesn’t expect Nifty to outperform global peers in 2023.

“Of the three major drivers of market levels — forward earnings, global price-to-earnings (P/E), and the India P/E premium to the world, it’s the last that is the most stretched. Although earnings growth will continue, it won’t be large enough to justify a substantial upside. Thus, the potential upside can only come from expansion in global PE. Given that India’s PE premium has maxed out, it may not outperform global equities.”

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



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