Market outlook: Robust corporate earnings expected to sustain

As we step into 2023, global challenges like recessionary fears, geo-political risks and rising Covid cases worldwide could pose a challenge and keep the equity markets volatile.

The US Fed policy actions in 2023, along with RBI’s, would hold importance where any moderation might encourage markets to pick up momentum. On the other hand, the Union Budget in February, too, could have a significant influence on the market as 2023 will be the last year before the General Elections in March 2024 and, thus, could see a lot of policy-led announcements.

Overall the robust earnings trajectory is expected to continue going ahead as well, given several structural tailwinds that place India in a bright spot on the world map.

Three themes are likely to play out in 2023 viz capex, credit growth and manufacturing. A strong revival in economic activity has led to credit growth touching a decadal high of more than 15 per cent in the past few months. A cyclical upturn in many sectors (real estate, auto, banking, telecom etc), is expected to fuel fresh private capex. On the other hand, capex by the Union government is expected to gather pace in 2023 ahead of the General Elections in 2024. The residential real estate sector is poised for an upcycle, primarily buoyed by improved affordability.

Manufacturing is another theme that is likely to play out in 2023. Industry consolidation has led capacity utilisation to recover to a long-term average of 75 per cent which would push private investment. In addition, the rising scope of outsourcing on account of China+1 and Europe+1, along with various government initiatives like Atmanirbhar Bharat and Make in India, will propel manufacturing contribution to GDP higher from the current 15 per cent.

Inflation, which has been a concern so far, has tumbled to an 11-month low of 5.88 per cent in November 2022 and has fallen under RBI’s mandated tolerance band of 2-6 per cent. Thus, going ahead, with an accelerated push by the Centre towards capex and an expected revival in private investment along with peaking inflation, Nifty earnings are expected to remain robust and grow at 17 per cent CAGR over FY22-24.

Domestic equities continued their northbound journey for the seventh year in a row with the highest yearly close for NIFTY 50 at 18,105. It outperformed the global markets significantly despite various challenges that capped the gains for the calendar year 2022 at 5 per cent.

For the full year, Nifty gained 5 per cent and stayed resilient as compared to global markets. It touched a new high of 18,888 in December on account of demand recovery, easing of the supply chain, strong domestic macros and better-than-expected quarterly results.

Nifty Midcap-100 too managed to close the year with gains of 5 per cent but Nifty Smallcap-100 bore the major brunt and fell 13 per cent for the year. PSU banks made a strong comeback and sharply outperformed other sectors with gains of 73 per cent. While IT was the biggest underperformer with losses of 26 per cent.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Limited)