ETMarkets Fund Manager Talk: India to be one of the best performing markets in 2023: Sushant Bhansali, Ambit Asset Management

India has been the best performing market in 2022. Do you see India repeating this show even in 2023 because some money managers think otherwise?

CY2022 witnessed several unprecedented events like decadal high inflation, war, commodity rally, FII selling and USD strengthening. Despite all the odds, Indian markets are expected to return 6-7% against a steep decline in other markets. In a scenario where the global economy is staring at recession, the Indian economy is poised to be the fastest-growing economy next year.

Strong domestic demand, stable agrarian economy, impetus on exports by the government ensures India’s position on a strong footing. Nifty 50 trades at 19x P/E in line with the long-term averages.

Hence, with the macro and micro concerns now out of the way, we expect India to be amongst one of the best-performing markets in the world in 2023.

When do you think we will reach the peak of interest rate hikes, and see global macroeconomic headwinds ebbing since recovery remains uncertain in the US, UK and China?
Recent inflation prints both in India and the US are below Street estimates, igniting hopes of a moderation in costs. US Fed’s latest increase in interest rates by 50 bps and RBI’s 25 bps hike indicates that incremental hikes will be smaller.

Also, the real policy rates in India are now back in the positive zone, which is very positive. We believe that we are now at the fag end of the tightening cycle and would expect the central bank to hit a pause button soon.

Which are the areas you are looking at for an opportunity to deploy funds?
Banks are attractive as they are well capitalized with asset quality issues behind and credit cycle revival.

Select opportunities in the software sector, which has seen the sharp sell-off on slowing growth concerns amidst global recessionary fears. We believe that the automobile sector should also be in a strong growth phase going into 2023, and we remain constructive on the same.

Themes like Make in India, PLI, and China+1 is the talk of the town and money managers are betting their money there. Do you think India can really go neck-to- neck with China and attract big investments?


India is uniquely positioned to capture the global shift from China. India at 18% of the world’s population and the fifth largest economy, is a large consumption market and most global MNCs are exploring expanding their base in India which provides a combination of a large domestic market and the potential to export to other markets

easily.

India has already seen the highest ever FDI flows of $80 billion in FY22, and with a stable policy regime and growth opportunities, it will continue to attract capital.

India has started seeing “dedicated” allocations from FIIs within the emerging market basket, rather than being just a part of their EM portfolio. What’s driving this bet and do you see scope for India to outpace China in the coming years?


China’s policies and regulations have been quite uncertain. Regulatory interventions have increased significantly causing a rise in investor concerns. India, on the other hand, has all the right ingredients to become a $10 trillion economy in the next decade.

FII owns 23% of Indian stocks whereas MSCI EM allocation to India now stands at 16-17% vs China’s 27%. We believe it’s a matter of time when FII allocation to India will increase given growth opportunity, political stability, reforms at play and reasonable valuations.

How do you see DII inflows and retail participation panning out in 2023? They were the guys who shielded India from the global shocks in 2022.
Equity as an asset class for Indian households still hovers at high single digit. Markets have delivered strong returns and outperformed all asset classes over the last 10-15 years. I don’t see any alternatives or reason for investors not to continue investments.

This year we saw large cap stocks doing better than the broader market which helped us scale record highs. Do you think midcap and small cap stocks will get their mojo back and could also outperform in 2023?
Largecap companies’ ability to navigate uncertain times are better due to stronger balance sheet, execution capability and leadership status in their sector.

2022 was an eventful year with inflation, interest rates, commodity upsurge etc. Mid and smallcaps have seen flat to negative returns, which will reverse next year with interest rates peaking and operating margins revival leading to good earnings growth.

How comfortable are you with valuations currently? Do you think the premium that India commands will sustain given that earnings growth is also expected to be better in FY24?
Relative to EM markets, India is trading at a 30% premium which will sustain if the economy continues to maintain momentum. Nifty 50 trades in line with the long-term average. Given the expectation of growth arbitrage over other markets and much better corporate balance sheets, premium could sustain.

Which are the major sectors you would bet on in the near-to-medium term and why?
Banks and discretionary sectors are well placed to outperform given sustained demand, strong balance sheet and low leverage.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)