Domestic equity market is likely to perform well during the First Half of 2023

Indian Equity Market 2023
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Oil price is the most critical factor for the Indian economy and markets in 2023. If it remains at subdued level of around $80 a barrel for most part of 2023, then the domestic markets would do well in that possible scenario.

What to expect in 2023?

The domestic equity market is likely to recover at least around 7% during the first half of CY2023.  India maintaining fastest growth among major economies in the world and recent crash in crude oil price by over 33% would help the Indian markets to outperform in H1CY2023 also. Further, record level of banking credit growth, robust crop outlook from both Rabi and Kharif crops, improvements in railway earnings, robust inflow of remittances & tax collections, moderation in inflation rates, etc. would augur well for the domestic markets during H1CY2023.

What are the challenges going forward?

There are three major challenges – any possibility of crude oil price rallying in the second half of 2023 as the global economic growth is expected to recover from the middle of 2023; any possibility of emergence of new deadly Covid variants; and any possible major war in Taiwan. Otherwise, India’s rate cycle would peak by mid-2023 and the same would help the economy to pick up growth momentum. However, by end of 2023, any possible uncertainty on the outcome of 2024 General Elections could be a possible risk factor for the domestic markets.

Do you think OPEC is becoming the new dampening force?

Yes, OPEC and Russia alliance could pose a major risk factor to the global equities from the middle of 2023. Most global institutions expect global GDP growth to pick up from the middle of 2023. IEA also expects global oil demand to pick up substantially in 2023. Hence, there is a possible risk of bubble in oil prices in the second half of 2023 which could impact the global equities quite significantly.

How India is shaping itself in this scenario?

Most parameters of the domestic economy are turning favorable. However, India faces some difficulties on the external economic front. Current Account Deficit, falling forex reserves, depreciating rupee and recent fall in growth rate of goods export are cause of concerns. However, if oil price remains at subdued level of around $80 a barrel for most part of 2023, then the Indian economy would improve almost all parameters except exports and hence, the domestic markets would do well in that possible scenario. Thus, oil price is the most critical factor for the Indian economy and markets in 2023.

Don’t you think RBI’s aggressive monetary tightening will considerably slowdown growth?

Rate hikes have already impacted rate of GDP growth in India. However, further rates hikes in India would be limited as inflation rates have moderated, both Rabi and Kharif crops have done well, global oil prices have crashed from 52-week highs and most metals have fallen upto 38% from their respective peaks. Hence, we can expect GDP growth rates to pick up significantly in FY2024.

What could go wrong?

Any possible war in Taiwan or on our border or emergence of any new deadly Covid variant or oil price jumping substantially beyond $120 could hit the markets. Otherwise, the domestic market is likely to give around 12% return in 2023. However, stock-specific actions would be in limelight as the overall investor base has crossed 12 crore now from 4.5 crore a few years ago and most of the new investors look for substantial gains in the short-term itself.

About the author: G. Chokkalingam
G. Chokkalingam
G. Chokkalingam, Founder of Equinomics Research & Advisory, has over 38 years of experience in the areas covering Economics, Equity & Market Research, and Knowledge Management. He was Head of Research at Enam Group for 15 years; Director & Head (Research and Strategy) Barclays Wealth India before joining Centrum Wealth Management as Chief Investment Officer. He has published various research articles in Economic & Political Weekly, Economic Times, Financial Express, Asian Journal of Economics, and other prominent publications and regularly appears on CNBC, ET Now, Bloomberg, NDTV Profit, Rajya Sabha TV, etc. He has mastered the art of picking big compounders.

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