After the correction, the valuation of the IT sector has become fair. However, downside risks to earnings remain high given the challenging global backdrop, feels Vinay Joseph, Head, Investment Products & Strategy, Standard Chartered Wealth – India.
His Investment Tips for 2023 – (i) Secure your income through relative return opportunities in bonds and large-cap equities (ii) Allocate long-term value to structural themes across financials, domestic cyclicals and investment-based themes (iii) Strengthen portfolio against surprises through defensive property and (iv) expand beyond traditional through alternative strategies
Edited excerpts:
Q. Given the forecast of mild recession, what is your outlook for the market? whatever level you are looking for smellySensex?
Our stance is neutral given the challenging macro backdrop Indian Equity As the extended valuation premium, both relative to key peers and in absolute terms, is offset by expectations of strong domestic growth and resilient earnings growth. Within equities, we are overweight on large-cap equities given relatively better macro fundamentals and a greater margin of safety in terms of earnings and valuations as compared to mid-cap and small-cap equities. Domestic sector is overweight given weak global conditions macroeconomic background and more earning flexibility.
Q. Is the IT sector an opportunity now or is more pain expected?,
We are neutral on IT sector as valuations have become fairer after the correction. However, downside risks to earnings remain high given the challenging global backdrop.
Q. It is advisable to have a diversified stock portfolio. What are the defensive areas one can look forward to in 2023?
We believe investors should be prepared for negative surprises given the challenging global macro backdrop. Moreover, Indian markets have significantly outperformed their peers, indicating a much smaller margin of safety. Thus, in our view maintaining a defensive portfolio allocation through cash, gold and adding a defensive tilt amongst equity sector positions is a prudent approach to avoid any unexpected surge in volatility.
Q. Bank Nifty has given more than 21% return in 2022. What level do you think Bank Nifty can reach by the end of current financial year.
Financials is a major overweight sector. The improvement in economic growth has driven a broad-based increase in credit growth. Besides, healthy corporate balance sheet, improving net interest margin and higher loan disbursement volumes are likely to support the profitability of the sector in 2023. Higher interest rates are an additional headwind for the sector’s yields and spreads. The sector trades cheaper as compared to the market with better growth as compared to other key sectors.
Q. What are the topics expected to be worked on on Dalal Street before Budget 2023?,
We believe it would be prudent to follow a safe investment strategy for 2023: (i) secure your income through relative return opportunities in bonds and large-cap equities (ii) structurally in financial, domestic cyclical and Allocate long-term value to topics. Investing theme-based (iii) strengthen portfolio against surprises through defensive assets and (iv) move beyond traditional through alternative strategies.
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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