Will equities remain buoyant in 2023? Watch out for these sectors!

Authored by Raghvendra Nath, Managing Director, Ladderup Wealth Management

Investors have faced excessive volatility in the month of December, as well as much of 2022 and the equity market has been among the most impacted sectors. In the last four days preceding Christmas, the market underwent agonising losses, with investors losing a cumulative total of Rs 15 trillion. The unexpected plunge came on the back of rising COVID cases as well as the consistent surge in global interest rates, leading Sensex to lose almost 1,000 points. Overall, the year that we are almost done with, has been a testing time for investors across the board – with a variety of negative cues as well as strong gains. As we move into 2023, it is time to take stock and talk stocks. According to reports, there is a strong possibility of the Nifty index attaining the 22000 to 23000 level in the New Year, in addition to the Sensex rising to touch 70000, buoyed by robust economic growth, political stability as well as sustainable recovery in global equities. Let us take a closer look at the positives and negatives in store for 2023. 

Equity Market Outlook 

All in all, 2022 can be considered a year run by bulls, with the Sensex reaching the 63,000 milestone earlier this year. However, there is some concern over whether or not the momentum will sustain into 2023 and investors are now looking inwards and outwards for cues. While there are many in the market who expect the stock market rally of 2022 to continue into the new year, on the back of cooling inflation and consequently more stable interest rates, the outlook is not completely rosy. Positive cues are being offered by aspects such as the up-trending profit cycle, subsiding global macro risk factors and a potential peaking of short rates in the first quarter of 2023 but there is a probability of the country’s relative gains slowing down in the year ahead. Further, the fact that the Nifty 50 index is being valued at over 22 times its 1-year forward earning is also causing concern to investors and market analysts. 

Even as there are some negative cues which may prompt a dip in equities, investors should eye 2023 as a year filled with potential gains – it is advisable to purchase fundamentally strong stocks when you see a dip in prices, as this will enable you to boost your portfolio without needing to buy into the highs. We expect India’s equity market to remain buoyant in 2023, irrespective of short-term lows, thanks to a variety of factors including relatively low inflation, when compared with other economies, sustained domestic growth, strong ongoing consumption as well as the slow downtrend in commodity prices. Further, strong earnings, growth expectations in the New Year is also bolstering sentiment in the market. In fact, throughout 2023, we expect that the conducive factors of 2022, which enabled India to outperform other developed and emerging economies, will remain in play and exert a positive influence on market movement. 

While there is strong positivity around Indian equities, investors need to keep a watchful eye on possible cues arising from the country’s widening trade deficit, consistent outflows from foreign institutional investors, fluctuations in currency as well as the continued efforts of Reserve Bank of India to reduce systemic liquidity. In combination, these factors could augur some negativity for the market. On a global scale, investors should remain vigilant about the forthcoming movements of the Federal Open Market Committee, as well as the developments in the Chinese economy and the energy arena, as these three themes could play a large part in deciding the movement of Indian equities.   

Manufacturing & Banking Sectors Lead the Charge 

Every year is a new opportunity for investors to rebalance their portfolios and turn their attention towards potentially rewarding sectors. In 2023, which are the sectors that could show significant rise and add the necessary firepower to your portfolio? If you are in for the longer term, then there are several sectors you can invest in, the first being manufacturing. Thanks to the Indian government’s strong focus on AatmaNirbhar Bharat and Make in India, there are robust positive cues for the manufacturing industry and 2023 could be a great time for you to start investing in this sector.  

Next up, you can consider fundamentally strong banks with a good Current Account Saving Account or CASA ratio, as these lenders are set for a glowing year ahead. The sector is expected to outperform due to sustained credit growth and enhanced asset quality, making it an ideal pick for investors keen on betting on India’s growth story. Within the sector, there is strong positivity around public sector banks, given the government’s attempts at consolidating and strengthening public lenders. Considering their lower prices, when compared to private banks, PSBs can be an interesting addition to the portfolio of retail investors. Another positive here revolves around the fact that, so far, PSB stocks have been deeply undervalued, making them excellent candidates for quick rerating and potentially stellar returns. 

Beleaguered Cement & IT Sectors Turn Attractive 

One sector which has witnessed a bottoming out of margins in 2022 is cement and this aspect makes 2023 a good time to invest in this segment. Sustained interest from major investors, as well as the entrance of new players like Gautam Adani, the cement sector is expected to witness strong uptick in 2023 and it is advisable that investors build positions ahead of the rally, to benefit from the current dips. With construction likely to grow consistently in 2023, it also makes sense for investors to allocate a certain portion of their portfolios to construction, infrastructure and cement stocks in the New Year.   

Similarly, the Indian IT sector has also witnessed a downturn owing to fears of global recession and stocks are now currently at attractive prices. If you have been waiting for an opportune time to build exposure to India’s top IT stocks, then you can buy these companies on dips through 2023. In fact, as one of the most crucial components of the Indian industry, the IT sector has, over the years, been a key driver of export revenue, contributing about 7.7 per cent to India’s GDP. Moving into 2025, this figure is expected to rise to 10 per cent, what with India being the largest IT services provider on a global scale. These aspects make the case for a strong interest in IT stocks in the coming year.  

While these four sectors can help you reap rich rewards in the New Year, there is one more segment you should consider. Since the pandemic made its presence felt and changed the way people live their lives, healthcare and pharmaceutical stocks have remained in vogue. These are two sectors that you can invest in 2023 and hold for the longer term, as the discovery of new viruses and their vaccines, as well as the need for newer medicines, will keep these stocks upbeat through the short and medium term.  

Whichever sector you may decide on for 2023, remember to always pick companies with strong fundamentals and sound management, as these are the two aspects which will help drive robust returns for your investment.