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Market Strategy 2023

India fared well both relatively and in absolute terms with respect to economic and stock market performance. Going ahead, we believe H1CY23 may turn out to be volatile as investors around the globe would seek answers to key puzzles such as: 1) How fast interest rate hikes come to a halt globally, 2) Damage to economic growth, more so in developed economies, 3) Lag effect of a rise in interest rates on demand cycle & corporate EPS in India, etc. However, we believe such volatility will throw up attractive opportunities in domestic oriented sectors like banks, capital goods, infrastructure, logistics, which will continue to be the beneficiaries of massive capex spend by the government/private sector and recovery in margins/profitability. Apart from these, domestic sectors like retail, real estate, auto ancillaries (domestic focused) will also provide good opportunities for the medium to long term.

We also highlight the key risks for CY23 that may get manifested in the form of a) Any negative surprise from Covid erupting once again and b) Continued hawkish stance of central banks, which may derail growth prospects.

Some of the themes to stand out in CY23 are:

• Electrification trend accelerating across categories in auto space
• Banks poised for next round of re-rating cycle…
• Capex: Government to the fore with all guns blazing…
• FMCG: Gross margins bottom out; volume recovery in sight...
• Retail sector: Organised players to gain more prominence
• Hotels: Structurally well placed to gain further traction…
• Hospitals structurally well poised for rounded growth
• Defence: Is the shift structural?        
• Textile: Exporters to overcome near term headwinds, expand global share
• NLP, Gati Shakti to help logistics sector fire on all cylinders…
• 5G: Huge opportunity for telecom sector…

Nifty fair value pegged at 21,500

Post rebasing in FY22 and surpassing the stagnant earnings seen over FY18-21 at ~| 450-500 levels, Nifty earnings are seen growing at ~15% CAGR in FY22-25E.

This is primarily driven by improved asset quality and credit growth revival in the index heavy BFSI space, pick-up in capex activity and consequent execution in capital goods domain, margins & profit recovery in auto, FMCG, metals, pharma and oil & gas space.

Introducing FY25E and rolling over our valuations, we now value the Nifty at 21,500 i.e. 21x P/E on FY24-25E average EPS of | 1020 with corresponding Sensex target at 71,600; offering a healthy potential upside of ~19%.

Stock Picks for 2023

1. Kajaria Ceramics
2. Sterlite Technologies
3. Maruti Suzuki India
4. Mahindra CIE Automotive
5. IndusInd Bank
6. HDFC AMC
7. Nesco
8. V-Guard Industries
9. Reliance Industries

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