For 2nd time after 1988-94, Sensex on track for 7th successive year of gains

If things do not go substantially southwards for the closing days of 2022, Indian bellwether equity indices would end the year with a small gain. This will mark the seventh successive year of positive return.

Sensex achieved this once during 1988-1994 and Nifty 50 never saw this, says Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers.

"We expect positive equity return to continue during 2023," Hajra said.

Valuation concern-led equity market correction looks unlikely in 2023.

Indian mutual funds are receiving annualised $20 billion net SIP inflows. The rising trend remained unscathed despite market volatility. A substantial dip in SIP during 2023 looks unlikely. In each of the three episodes since 2000, when Indian equities registered a net outflow of FII money, the next couple of years witnessed large inflows. The current trends also suggest the possibility of substantial FII equity inflows in 2023, Hajra added.

The combination of reasonable fundamentals and valuations coupled with the possibilities of large inflows suggest that equity returns in India would be positive in 2023. In view of global concerns, we expect the return to be in line with the long-term averages i.e., 10-13 per cent, Hajra said.

Emkay Institutional Equities expects Nifty to attain a level of 19,500 by December 2023 given the current situation. Barring any major change in the global macro-economic and geo-political set-up, Sensex at 64,500 indicates a 7-8 per cent increase from the current levels.

Largely, the increase in Nifty-50 profit after tax (PAT) in CY23 will be led by Banks, Auto OEMs and Ancillaries, Oil & Gas, and IT companies.

Sanjay Chawla, Head of Institutional Research, Emkay Global Financial Services said, higher-for-longer interest rates and a sudden rise in Brent crude oil prices are potential challenges for the market in the next 6-12 months. A capex-intensive budget by the government may spur investment; however global and domestic growth uncertainties may act as an impediment. Given the current scenario, we see Nifty-50 fair value of around 19,500 by the end CY23; we expect aggregate profit growth of Nifty-50 to be fairly resilient at around 15 per cent in CY23.

ICICI Direct said in a note that India fared well both relatively and in absolute terms with respect to economic and stock market performance.

"Going ahead, we believe H1CY23 may turn out to be volatile as investors around the globe would seek answers to key puzzles such as (1) How fast interest rate hikes come to a halt globally; (2) Damage to economic growth, more so in developed economies; (3) Lag effect of a rise in interest rates on demand cycle & corporate EPS in India, etc," it added.

"However, we believe such volatility will throw up attractive opportunities in domestic-oriented sectors like banks, capital goods, infrastructure and logistics, which will continue to be the beneficiaries of massive capex spend by the government/private sector and recovery in margins/profitability. Apart from these, domestic sectors like retail, real estate, and auto ancillaries (domestic focused) will also provide good opportunities for the medium to long term," ICICI Direct stated.

We also highlight the key risks for CY23 that may get manifested in the form of (a) any negative surprise from Covid erupting once again and (b) the continued hawkish stance of central banks, which may derail growth prospects, it said.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services said three major trends are emerging as the New Year approaches: (1) the impressive credit growth is sustaining; (2) capex is gaining momentum; (3) real estate is picking up. Therefore, financials, capital goods and construction-related stocks are well-positioned to outperform in 2023. In financials, the leading private sector banks have the potential to move up further and PSU banks are short-term trading plays.

Axis Securities said in a note that Banking & Financials will be major themes to watch out for in 2023 on account of their improved economic outlook and the pick-up in credit growth.

Rural recovery is expected in 2023 led by moderation in inflation, softness in commodity prices, better farm income expectations, and higher government spending.

Capital expenditure (especially railway Capex) and Infrastructure spending are likely to be overarching themes. Home improvement theme: With the pick-up in the real estate and housing demand, the home improvement theme has bolstered and would continue to be robust in 2023.

The note said a rebound is expected in the Pharma sector on account of new launches and gaining market share. High-quality retail play will continue to remain in focus.

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