2023 – Will markets sustain momentum or loose steam-

2023 – Will markets sustain momentum or loose steam?

By Sumita Pillai

Indian equity markets have seen isolated performance in CY2022. Despite rupee depreciation, while global markets were down 20 to 30%, Nifty 50 was down just 6.8% in dollar terms and up 3.8% in rupee terms (data as of 31st October 2022).

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While these factors are at play in the near term, equity market performance, in the long run, has always been a combination of earnings and valuations. Let’s look at both these factors to see where we are in the cycle.

Source – Bloomberg

From FY16 to FY20, Nifty earnings grew by a mere 4% CAGR with 2 years of negative growth. During COVID, we saw the RBI adopting an expansionary policy stance in line with the world which led to the cost of funds coming down and a liquidity surplus in the system. Taking advantage of this, India Inc today has gone through a major deleveraging cycle to emerge with stronger balance sheets which should help in achieving sustainable growth going forward. Nifty 50 companies reported a 23% CAGR (FY20 to FY23E) number on earnings during this period. We expect corporate growth to normalize as interest rates and liquidity normalizes to a 12-15% range going forward.

Source – Niftyindices.com

Adjusted for COVID data, the average trailing Nifty50 PE is around 25x. In terms of valuations, Nifty is slightly below its historic average and hence we don’t see much risk in valuations alone. While global factors like the looming recession, higher crude prices and currency depreciation will play a key role in the short term, Indian markets look resilient from a mid to long-term perspective.

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Indian markets are well placed from an earnings expectation and valuation standpoint, and we expect Indian markets to continue their momentum in the following year with bouts of near-term volatility largely due to global factors. We recommend investors to stay invested in the long term, have portfolio orientation towards domestic companies and choose managers who can add alpha over the long term.

(Sumita Pillai is CEO at Torus Wealth Pvt. The views expressed are the author’s own, and do not reflect the official position or policy of FinancialExpress.com)