In financial writing, ‘year enders’ mean you turn to forecast. While everyone reviews the year gone by, financial markets look forward to what lies ahead. The year 2023 could be more or less the same as 2022 for your money. There are a lot of headwinds and tailwinds that are likely to collide.
Forces for your money
First, here is the good news. You can easily protect your wealth in 2023. Interest rates will remain firm throughout the year. The outlook for inflation influences them in the economy. In the first two quarters of the financial year 2023-24, the expectation of consumer price inflation is over 5%. It is higher than the desired level of the Reserve Bank of India at 4% and lower than the tolerance level of 6%.
That implies no dramatic cut in interest rates in 2023 despite a downward trend in the inflation rate. For those looking to protect their wealth in 2023, your money in fixed deposits, post-office schemes and government bonds will give you a return for wealth protection.
Share prices are likely to remain in a range in 2023 as the pressure on the inflation in the economy eases and is unlikely to bite into corporate profits. There are assumptions of a normal monsoon and steady oil prices around the $100 per barrel mark in the growth and inflation expectations.
Corporate profits are likely to show steady growth led by domestic consumption. In their 2023 predictions, analysts suggest a boom for Indian equities over the next few years. American investment bank Morgan Stanley’s India expert Ridham Desai says it could be India’s decade as it becomes the third-largest economy in the world by 2031.
Forces against your money
Headwinds to your money are led by the term ‘uncertainty’. Financial markets hate that situation. International commodity prices remain under pressure due to a prolonged war in Europe. The disruption in China means that supply chains are getting a rejig, which should hurt the delivery of goods worldwide. It is a dramatic disruption that is likely to continue for a long time before the ‘China + 1’ strategy gets a meaningful form. India is expected to benefit from the manufacturing jobs that could move, but that is a few years away.
Also, the Budget of February 2023 will be the last budget before the general election. The government is doing very well in generating substantial tax revenue to meet Budget 2022 estimates and do better than expected. However, 2023 will witness the government launching welfare schemes to woo voters. All of that means inflation is not going away anywhere in 2023. In the equity markets, share prices are already at their peak. With the rest of the world not doing so well, India is unlikely to see a runaway rally in 2023 despite a flat performance in 2022.
What you should do
This column does not advise on investing. You have to engage a professional financial advisor for this purpose. You need to make an appropriate asset allocation with professional help. This column can help you connect the dots and engage in a meaningful conversation with your advisor.
Multiple factors could influence your money in 2023. You need to tread carefully and not put all your eggs in one basket. Do note that the flight of fancy in 2022 crashed for too many people. Consumer technology companies that were supposed to become darlings of the stock market after their listing lost more than half of their value.
Bitcoins and cryptocurrencies have done much worse. You must understand that investing is not an ‘all-or-none’ game. You have to spread your surplus money each month across asset classes.
If you are new to investment, exchange-traded or index funds are an excellent way to start. If you are experienced, you need to balance your portfolio to minimise risk. ‘Getting rich slow’ is not a bad mantra if you think Warren Buffett, the legendary American investor is an achiever. Your returns in 2023 depend on your ability to understand and make connections.
Balance your portfolio to minimise risk
Multiple factors could influence your money in 2023. You need to tread carefully and not put all your eggs in one basket. Do note that the flight of fancy in 2022 crashed for too many people. Consumer technology companies that were supposed to become darlings of the stock market after their listing lost more than half of their value. If you are new to investment, exchange-traded or index funds are an excellent way to start.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)