In an interview with ETMarkets, Kulkarni who has over 19 years of experience in the Financial Services and Telecom sectors, said: “The important factor for 2023 will be earnings growth as market valuations are not cheap, considering the NIFTY 50 PE multiple is 1.5x standard deviation above the mean” Edited excerpts:
As we enter the last month of December, we are seeing some consolidation at higher levels. What is your view on the market for the year 2023?
We expect double-digit returns from Indian equities in 2023 in line with the benchmark earnings growth. The important factor for 2023 will be earnings growth as market valuations are not cheap, considering the NIFTY 50 PE multiple is 1.5x standard deviation above the mean.
Gold outperformed equities so far in the year 2022 compared to the 4% fall seen in the previous year. Do you see the trend continuing in 2023?
Gold is generally considered a hedge against inflation. In a high-inflation environment globally, gold tends to do well.
However, it seems the peak of inflation has passed, and the global risk appetite could increase in 2023. In this scenario, gold may not be the best asset allocation theme. Thus, it is more likely that equities will outperform gold in 2023.
RBI raises rates by 35 bps in the December meeting. What is the trajectory you see for the year 2023?
Interest rates are likely to top out very soon. We might see another round of rate hikes, depending on the global environment.
However, headline CPI has begun to come down while core inflation is stable. In this scenario, 2023 might see a more stable interest rate environment.
Which sectors are likely to remain in limelight in the year 2023 and why?
In 2023, Banks will continue to remain in the limelight as the sector is seeing strong credit offtake and NPAs are at a cyclical low.
The industrial sector will continue to see robust growth in order books as the CAPEX cycle has started to turn around. Autos and the Consumer sector will also continue to see good growth in 2023.
A lot of PSU banks are picking traction but is it FOMO that is now playing in the market because most investors as well as institutional had very limited exposure?
PSU banks are benefitting from multiple tailwinds. As the banking sector is now at a cyclical low of the NPA cycle, profitability and return ratios have improved significantly.
The sector is also facing challenges of deposit mobilization as a credit offtake has accelerated. PSU banks traditionally have been very good at deposit mobilization and have a good CASA ratio.
Taking this into consideration, the room for credit growth for PSU banks is high, which will lead to superior return ratios. Current valuations for PSU banks are still reasonable, providing headroom for stock price appreciation.
Oil prices have cooled off recently. How will that play out on the earnings of India Inc. as well as markets?
Oil prices were a significant challenge at the beginning of the year. Moreover, these challenges were further exacerbated by rising GRMs.
However, declining crude prices are a significant positive for India Inc. as they will lead to expansion in gross margins. The decline in crude prices should start reflecting in earnings from Q4FY23 onwards.
Where is smart money moving? Where to find value in this market?
Smart money is moving towards banking and industrial stocks. There could also be some movement towards the IT sector as a contra bet as the sector has seen positive returns in the last six months and has seen significant outperformance compared to the NASDAQ index over the last year.
FIIs are back with positive flows in the Indian market in the last month. Do you see a reversal of flows (more money coming in) in 2023?
FII flows continue to remain very tricky. However, it is important to note that passive management has overtaken active management globally. India’s weight in the emerging market indices has increased.
This will help as global risk-on trade plays out in 2023. The timing remains uncertain, but 2023 could see significant inflows into global equities which will also benefit India, albeit disproportionately.
How is India placed compared to global peers in terms of valuation?
Indian equities are expensive compared to global peers. India is trading at a 90% premium compared to emerging market index valuation. The long-term mean is around 30%. Indian equities are seeing a significant premium valuation.
Any 3-5 learnings for retail investors from the year 2022 which they can use in 2023?
The key learnings for the year 2022 were:
a)Diversification is crucial as some stocks see significant drawdowns. The impact on the portfolio can be mitigated by adequate diversification.
b)Equities are more resilient than they appear to be as 2022 saw significant challenges of war in Europe, ultra-high inflation, and others. Even as these challenges persisted, equities managed to touch new highs during the year and managed to deliver healthy returns.
c)Never write off good businesses.
had challenging last few years but managed to deliver superlative returns in 2022. Of course, there are many other examples, but ITC tops the list as it had become a meme stock.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)