2023 likely to be a flattish year for Indian equities: Kotak Securities

Kotak Securities sees Nifty50 at 18,385; rising FD rates could attract investment

Kotak Securities has given a base case target of 18,717 for the Nifty50 index for 2023. The brokerage believes that a combination of global headwinds and stretched valuations could cap the gains for next year.

On Tuesday, the 50-share index closed at 18,385 points.

"In the short run, markets are expensive and at this level, it is difficult to expect major returns. The downside is limited but the upside is capped. We are expecting a flattish year,' Shrikant Chouhan, executive vice president and head of research, Kotak Securities, said.

Chouhan said it will not be not easy for investors to make money only from equities. "They have to invest in other asset classes. But there will be opportunities to buy on dips and investors should 'buy with a view of more than 12 months."

The brokerage said the Indian equity markets have shown remarkable resilience considering the foreign portfolio investor outflows (FPI).

The brokerage pointed out that Indian equities faced four consecutive shocks in the last two years in the form of Covid-19, high inflation as a result of disruption in global supply chains, geopolitical tensions necessitated by the Russia-Ukraine war and a sharp rise in the interest rates.

The Indian economy has been able to withstand these shocks relatively better than other economies. This was led by a cyclical upturn in many sectors, including real estate, auto, and banking. Manufacturing tailwinds -- led by China+1 -- and production-linked incentives and capex recovery also aided in the resilience of the economy, the brokerage added.

 

"It has been a surprisingly good year considering the outflows. At a 3 trillion-dollar economy, I am expecting that India will not be an emerging market in the future, it'll be in its 'developed economy phase', I am optimistic about it, " said Jaideep Hansraj, CEO, Kotak Securities.

However, the brokerage noted that downside risks are increasing from global factors and the lagged impact of monetary tightening. " Factoring in the latest print, we maintain our FY23E (financial year 2022-23 estimates) and FY24E real GDP growth estimates at 6.8% and 6%, respectively, with downside risks,' the brokerage noted.
 

During the year, massive domestic flows helped the Indian equities to withstand the selling by foreign investors. The inflows into Indian markets through systematic investment plans (SIPs) have been growing above the Rs 12,000-crore mark since May. The average for the last seven months of FY23 is around Rs 12,300 crore. In FY22, the average monthly inflow was at around Rs 10,000 crore," the brokerage said.

The brokerage added that the staggering investment approach through SIP in equity markets is a solution to ride the wave of uncertainty. Strong SIP flows also underpin investors’ faith in the Indian economy.

However, the brokerage expressed concerns about the continuity of domestic flows amidst rising fixed deposit interest rates. " This year investors did not have any option to invest other than stock markets. But the next year, the rising fixed deposit rates may attract some flows,' Chouhan said.