Satish Ramanathan of JM Financial Asset Management
The year gone by saw equities gaining ground due to lower fixed income yields, but it may not hold in 2023, says Satish Ramanathan of JM Financial Asset Management. He believes that the rerating of equities may be over for now and the market could enter in a bout of time correction or mild price correction.
The CIO for equities, armed with a rich and varied experience of around three decades, continues to believe in India’s manufacturing renaissance. With China+1 and PLI, he expects many companies to benefit and grow manifold as India starts exporting to other countries. Excepts from an interview with Moneycontrol:
Do you think the volatility and rangebound trade to continue in equity markets till the Fed gives a strong signal for pause in rate hikes? Any kind of strong challenge that can drag the Nifty50 down to June 2022 lows again in 2023?
We believe there are many cross-currents at play in 2023 and it is difficult to isolate the Fed fund rate hike as the key to markets. We highlight that the risk appetite has declined considerably and liquidity tightening has increased yields in other alternate channels of investments.
So, while in 2022, equities was preferred due to lower fixed income yields, it may not hold in 2023. Hence we believe that the rerating of equities may be over for now and we could enter in a bout of time correction or mild price correction. Corporate earnings should continue to deliver reasonably good numbers and that should act as a base to markets.
Will the midcaps be in a sweet spot for 2023?
In terms of midcap equities, we find that valuations are still reasonably high, with retail participation at higher levels than large-caps. We expect that midcap companies will continue to deliver superior profit growth but may face some valuation headwinds.
Do you think the railway capex will be a big theme in current (2023) as well as next year?
Railway capex will continue to be a big theme for the foreseeable future, as there has been several years of under investment. With the general elections round the corner in 2024, will the government allocate funds here or divert them to other sectors, however is unknown.
Will the earnings growth struggle in coming quarters considering the changing global environment?
India’s corporate earnings will face mild headwinds due to lower exports and higher input costs in the immediate few quarters but we expect that over the medium term corporate earnings will continue to deliver superior growth as domestic demand environment is favourable.
Are the pharma and insurance sectors look attractive on the valuations front?
We do not comment on specific sectors. The pharma industry has seen significant cost input pressure and erosion in prices in main generics markets. With the Covid demand behind us we anticipate lower growth in the sector.
In the insurance sector, we see many tech based platforms competing and eroding prices. Hence we prefer to have a wait and watch mode here.
What would be one biggest theme for 2023 that can be a part of a portfolio for at least current decade?
We continue to believe in India’s manufacturing renaissance. With China+1 and PLI, we expect many companies to benefit and grow manifold as India starts exporting to other countries. With FTAs (free trade agreements) being negotiated, India may begin to have more favourable terms as well.
Will the pain be over for IT stocks in the first half of 2023 or will it continue for the entire year? But should one start accumulating these stocks?
India is core to the global IT industry and cannot be ignored. However, with a global slowdown, companies may pull back spending marginally. Cloud spending and research and development will still continue to see investment, though legacy upgrades will see some cutbacks. A selective approach is recommended.
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