Escalation of geo-political tensions in the China-Taiwan area, worsening of the Russia-Ukraine war, and resurgence of Covid-19 in several countries, leading to a situation resembling the 2020-21 recession are among the key issues that may threaten the equity markets in 2023, Ajit Banerjee of Shriram Life Insurance says in an interview to Moneycontrol.
Hence, given there are many uncertainties and challenges which are looming large over the world, the Chief Investment Officer feels the markets will remain volatile in the near term which can be used as a buying opportunity for long term investors.
From sectoral perspective, Ajit with more than 29 years of experience across diversified sectors in the fields of investments, financial control, management accounting and many more, says Shriram Life is positive on banks, auto, cement, defence, utilities and capital goods.
What are the challenges for equity markets in 2023 after significant volatility in 2022?
There are few issues which may throw challenges for equity markets in 2023 which are as follows:
a) Continued rate hikes by Central Banks even if at a moderated levels which may lead to interest rate remaining higher for longer may lead to higher allocation of funds from equity to debt asset classes by a segment of investors
b) Escalation of geo-political tensions in the China-Taiwan area
c) Further intensification of Russia-Ukraine war
d) Resurgence of COVID-19 across the globe leading to a recreation of 2020-21 types situation
e) Higher inflation levels leading to a recession in major countries of the world is bound to have knock down effect on India.
Santa rally seems to have fizzled out completely. Do you see any possibility of market hitting June lows in coming year?
The calendar year 2022 has seen markets touching many highs and lows in a short span. Unlike other years this year-end market movement seems like southwardly. However, it’s no brainer to understand that if the market levels go up significantly without being aptly supported by long term fundamentals from global and local perspective in a fair proportion then any headwinds are bound to distort the momentum.
Presently there are many uncertainties and challenges which are looming large over the world which may impact India and its markets adversely. The proportion in which it may impact is difficult to predict hence markets will remain volatile in the near term which can be used as a buying opportunity for long term investors.
Do you expect any kind of great outperformance from pharma space in 2023?
We have already seen during the previous waves of COVID-19 striking the globe pharma sectors stock zooming up because of the business volume that it generates. Since markets are always forward looking in nature hence, with every news flowing in on the resurgence or containment of COVID-19 will impact the direction of pharma space on either side.
We have already witnessed some movements in past few days in that segment some of which may be purely speculative though.
Considering the weakening global environment, do you expect significant earnings downgrades in coming year?
As interest rates are inching up accompanied by high inflation these would have a negative impact on the P&L (profit & loss) of the companies. Further due to recession hitting Euro Zone and the US and few other countries which are some of the major exporting countries for Indian corporates leading to a material impact on the revenues of such export facing companies leading to earnings downgrades.
Comparatively domestic facing companies would be faring better in these periods. The companies which have a very strong brand and customer loyalty attached will also be able to pass on the price increase to the customer and hence maintain the margin.
What are the themes that can be considered for investment in current market turmoil?
Broadly domestic facing coming companies are better positioned in current market scenarios. Initiatives on the production-linked incentive scheme (PLI) and Atmanirbhar Bharat fronts are likely to play a key role in driving the growth going ahead. With the objective to maximise exports and reduce dependencies on import companies operating in those areas including defence sector is likely to get benefitted.
From sectoral perspective we are positive on banks, auto, cement, defence, utilities and capital goods.
What are your thoughts on real estate space considering the rising interest rate environment?
Rising interest scenario certainly acts as a deterrent for the growth of real estate environment for the mass market segment.
Interest rates have risen quite substantially over last one year. The present levels of retail housing loan in hovering around 8.75 percent-9.10 percent level across PSU banks. The spurt in the interest rates would adversely affect the affordable housing loan segment going forward but may not significantly impact the affluent and commercial housing segment significantly on an immediate basis.
Hence the housing finance companies depending upon their portfolio composition biasness towards affordable, affluent and commercial segment loan will be impacted accordingly.
Do you expect a significant run-up in the infrastructure space as the government is expected to increase spending ahead of general elections?
The government has been consistently focussing on infrastructural development across the length and breadth of our country. Various infrastructural projects and initiatives are under progress.
We expect the focus of the government to continue in this segment going forward as well. It has also been proven that investment in capital expenditure projects has a higher multiplier effect on the GDP growth of the country. Hence we opine that the momentum to continue in higher allocation to infrastructure projects and not influenced by the mere fact that general elections are due in 2024.
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