MUMBAI: The year 2022 will be remembered as a period when the Indian economy stood tall against global headwinds like high inflation, rising interest rates, looming global recession and geopolitical tensions. Investors could expect the new year will bring more growth opportunities and fewer challenges.
As we step into the new year, investors will need to be more vigilant in 2023 as performance of equities, bonds, gold, fixed deposits and real estate will be impacted by a plethora of global and domestic factors.
Equities
Indian equities went through a volatile phase last year but performed much better than most of its emerging peers and developed countries. When indices in other markets gave negative returns, BSE Sensex and NSE Nifty index delivered 4.4% and 4.3%, respectively in 2022. With the Indian economy set to grow more than many major economies, Indian equities are expected to generate healthy returns to investors.
World Bank predicts India to grow 6.6% in FY24. Fitch Ratings estimates India GDP to grow at 6.2% in FY24 and at 6.9% in FY25. As per the forecasts given by different analysts, the BSE Sensex is expected to reach 65,000-70,000 levels by 2023 end, while NSE Nifty is expected to reach 20,000- 23,000 by year-end.
“Nifty earnings are seen growing at around 15% CAGR in FY22-25E. This is primarily driven by improved asset quality and credit growth revival in 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,” Pankaj Pandey, Head Research, ICICI Direct told TNIE.
Domestic Institutional Investors (DIIs) are likely to be a dominant force, going forward as well. In the last 12 months, DIIs have bought equities worth R3.1 lakh crore
Bank Fixed Deposits
Bankers will be closely watching the statements from the RBI governor this year. Driven by multiple rate hikes by the RBI last year, tighter liquidity, high credit demand and wide gap in credit and deposit growth, banks have raised rates on fixed deposits.
Banks are now offering up to 8%interest on FDs. As the RBI is expected to further hike repo rate in its next meeting in February, the rates on FDs are expected to move further up next year. However, 2023 may see the peak of FD rates as RBI is expected to pause its repo rate hike following the pause in hike by US Fed.
“Banks deposit and borrowing rates are expected to expand due to a lagged effect compared to the repo rate, strong underlying credit demand, lower liquidity in the banking system, a wide gap in credit and deposit growth and credit push by the banks in H2FY23,” Sanjay Agarwal, Senior Director, Care Ratings said.
“Many of the banks have already increased their term deposit rates, and are further expected to increase, which will drive the deposit growth rate,” he added.
Gold
For the yellow metal, this year may be a period to glitter as demand for yellow metal as a safe haven may rise due to geopolitical uncertainty and looming risk of recession. Experts say that concerns over weaker global economic growth and geopolitical tensions will continue to make gold valuable as a hedge against uncertainties.
“Together, with a looming recession, reasonably higher inflation, a falling dollar, and a highly uncertain geo-political situation, gold is expected to perform well in 2023. Physical demand for gold bars and coins remains strong, spurred by ongoing inflation concerns and geo-political and financial market risks. On the MCX, Gold may trade in a range of R48,500-60,000/10 grams,” said Kotak Securities in its recent report.
Bonds
In a year which saw rising repo rate, bond prices fell and yields rose. With interest rates likely to see their peak and could moderate going ahead, 2023 may be the good time to invest and lock in money at a higher rate. Investors looking to diversify their investment portfolio can look at debt mutual funds, experts say.
“Bond yields are expected to remain range bound as a combination of growth driven stimulus and base effect vie to balance inflation and supply chain disruptions,” Nachiketh Naik, Head - Corporate Lending, Arka Fincap- a non-bank finance company. Analysts expect India’s benchmark 10-year bond yields to be around 7.59- 7.71% by the end of this year.
Real Estate
After witnessing strong demand from home buyers last year, the real estate sector is expected to continue the growth momentum this year. However, the extent of repo rate hike, which will force banks to hike home loan rates, will be a crucial factor to watch out during this year.
“Housing sales remained upbeat throughout 2022, and the current sales momentum will sustain at least into the first quarter of 2023,” Anuj Puri, Chairman of real estate consultancy firm Anarock said.
“Thereafter, much will depend on forces other than the desire for homeownership, such as additional repo rate hikes and property price increase,” he added.
Crystal Ball Gazing
65,000-70,000 Expected level of BSE Sensex by end of 2023
20,000- 23,000 Expected level of NSE Nifty by end of 2023
7.59- 7.71% Expected yield on 10-year Indian government bond by 2023 end
6.6% World Bank’s forecast for India’s GDP growth in FY24
L48,500-60,000 Expected trading range for gold (per 10gm) on MCX in 2023
4-8% Interest rates offered by banks on FDs
Rs 3.1 lakh cr Equities bought by Domestic Institutional Investors in 2022
Factors that will affect different asset classes