"It is not the right time to invest in IT stocks immediately based on the current fall since there remains a lot of uncertainty around multiple factors such as the macros, the order flows, and the recession in developed economies," Divam Sharma of Green Portfolio says in an interview to Moneycontrol.
But, he believes speciality chemicals is a suitable theme to bet on in 2023 since valuations are comfortable and India is likely to increase the market share in global chemical exports.
The Founder of Green Portfolio with more than 13 years of experience in investment management in stock markets says the major learnings from 2022 include the possibility of de-globalization or re-globalization, the idea of supply chain getting drastically readjusted and the idea around more favoured nations and less favoured nations for trade.
As we are going into 2023, what are the challenges for equity markets?
The year 2023 has certain novel challenges for equity markets. The first one being the newly enforced lockdowns in China which can lead to supply chain issues and another possible Covid surge.
Secondly therein also lies a high probability of some developed countries going into recession, along with a slowdown of global growth which will impact exports. Lastly, a higher allocation towards debt can impact equities.
Do you expect 50 bps hike in interest rates by Fed and what could be the terminal rate?
Yes, a 50 bps hike in interest rates by Fed can be expected and the expected terminal rate could be around 5.25 percent. Economic indicators in the US are still flashing progression and indicates no signs of a slowdown. The Fed remains wary of this and will continue to front load interest rates.
Is the speciality chemicals a great theme to bet on in 2023?
Yes, speciality chemicals are a suitable theme to bet on in 2023 since its valuations are comfortable and India is likely to increase the market share in global chemical exports.
Fall in revenues and margins have been factored in and in our opinion these stocks have been punished severely during the last one year. Capex of companies that we monitor are now coming online which will lead to robust results, and the slowdown in commodity prices will support this sector.
Do you think the current fall has given a great opportunity to invest in IT stocks?
According to our estimation, it is not the right time to invest in IT stocks immediately based on the current fall since there remains a lot of uncertainty around multiple factors such as the macros, the order flows, and the recession in developed economies.
Since the start-up funding winter still remains, the 2nd half of CY23 should be a better time to gauge the market and invest in IT stocks.
The equity markets seem to have turned cautious due to growing global recession fears. Your thoughts?
Yes, based on our estimations, therein lies an upward of 50 percent probability of recession in many developed economies as 3 out of the world’s 5 biggest economies are facing recession fears. The major positive to emerge out of this from an Indian standpoint is that this will lead to the prices of commodities and crude prices staying low.
However, what goes against India’s favour is that the Global growth can impact India's exports and FPI/FDI flows which would lead to India’s growth being stifled.
Do you expect a risk of earnings downgrade and lower economic growth forecast in 2023?
Yes, a risk of earnings downgrade and lower economic growth forecast is expected in 2023 as is indicative by the broader markets still trading cheap. Since we are in a capex mode, we hold a favoured position as we will be mostly done with capex by the time we come out of the woods.
FDI that has come in over the last few years will start to reflect on the growth and PLI and infra spending will start having a GDP multiplier effect.
Since markets move 6 months ahead of the actual economy, the global issues will be adjusted by continuity in domestic consumption and the 2nd half of 2023 should therefore be better for the markets.
What is your great learning from 2022 and how do you approach the financial markets next year?
The major learnings from 2022 include, the possibility of de-globalization or re-globalization, the idea of supply chain getting drastically readjusted and the idea around more favoured nations and less favoured nations for trade.
We always take a long-term stance with regular evaluation of company performance and outlook. The same looks really promising if you look at it for the next 3-5-10 years horizon.
One consensus I see among fund managers and promoters is that this decade belongs to India. Next year can have some bumpy ride as we see some impact of tightening, recession, covid surge expansion from China and high fluctuations in commodities, however the second half should be better than the first half.
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