Indian stock market looks extremely promising and in spite of volatility, there is definitely a positive bias. We believe that 2023 will be a year of consolidation and also reasonable upward movement with an average return expectation of around 15%. Liquidity flows into the equity market, will continue unabated and this will ensure positive bias for the market.
We believe macro environment remains uncertain with geo-political tension, supply side challenges and looming slow- down in Europe and USA. The two most important factors which can have a negative impact on Indian macros are rising oil prices and falling exports on the back of slow-down in global economy.
However, strong liquidity, public and private, capital expenditure and continuously improving performance of Indian corporates, will keep Indian economy and markets buoyant. Appropriate policies introduced by the Government to provide competitive advantage in manufacturing, has brought back the mojo in the manufacturing sector. We strongly believe that Indian economy will benefit in a big way, over the years due to this renewed focus on manufacturing.
FPIs will invest and remain invested in Indian markets. Out of the emerging market basket, only India remains investible. This ensures that fresh funds as well as funds coming out of other emerging markets, will look for a safe haven in India. Thus, continuing and improving liquidity scenario coupled with improved corporate performance, makes us positive on Indian equities, in 2023. Headwinds for Indian markets in 2023 would be on account of the geo-political reasons which may make crude oil expensive. If the crude oil price remains stable and in current range, Indian economy and the markets should do well. We believe that investors should do well by carefully picking stocks and keeping them for the long run. There are still pockets of under-valuation and potential for rerating in few sectors and stocks.
Fresh investment opportunities will rise in domestic focused sectors of the economy like infrastructure, construction and related themes and I would recommend making fresh investments in infrastructure, construction and related sectors like cement, building materials, capital goods etc. Generally old economy stocks should perform well in 2023. Most of these stocks are domestic focused business. Considering the headwind in global economy, we believe that businesses catering to domestic market, should do well in 2023.
Disinvestment is an area where we believe that the results for government has been sub-optimal due to multiple reasons. While some companies are likely to be dealt with during 2023, significant traction is unfortunately not expected considering the fact that we will be heading into Parliamentary Elections in early 2024. We believe that Indian PSBs and Defence companies provide significant opportunities for the government to unlock value in a systematic and strategic manner. While during the year 2022, both PSBs and Defence stocks have performed well, there is scope for significant value unlocking even now.
A bunch of over-priced new age companies’ IPOs spoilt the IPO market and the investor sentiment turned negative in a big way in 2022. While some of the companies had genuinely strong potential, the valuation at which these IPOs came, were inappropriate making investors lose significant amounts. Fundamentally, there is nothing wrong with the IPO market and in an overall capital market scenario where there is buoyancy, there is no reason why good quality IPOs should not do well if they are appropriately priced.
Our strong belief is that India capital markets are on their upward trajectory in the medium to long term. Barring short term volatility and corrections, the positive bias for the markets remain intact. Equity will provide best return amongst the asset classes in the foreseeable future.