Uday Kotak flags three risks for India in 2023

Kotak Mahindra Bank CEO Uday Kotak

The year 2022 was a year of reckoning for the Indian economy and equity markets. High inflation and rising interest rates took center-stage as markets remained volatile. As we head into 2023, several unknowns remain, of which, Uday Kotak believes India 'must' prepare for three.

The veteran banker and CEO of Kotak Mahindra Bank shared his thoughts in a tweet:

As we head into 2023 - three risks we must prepare for: 1. Inflation remains stickier for longer. 2. Russia does something unpredictable. 3. China drives to become numero uno. Wish all a happy 2023.

— Uday Kotak (@udaykotak) December 30, 2022

1.Inflation remains stickier for longer

India's headline retail inflation dropped to an 11-month low of 5.88 percent in November from 6.77 percent in the previous month. The central bank's inflation forecast is 6.7 percent for FY23, which is slightly above its upper tolerance limit of 6 percent.

The monetary policy committee in its December 7 meeting stressed that inflation is expected to remain above the upper threshold in second and third quarter of fiscal year 2023 and projected that sustained high inflation could destabilize inflation expectations and harm growth in the medium-term.

The RBI also emphasized on continuing to weigh the evolving geopolitical developments and the international commodity market dynamics as key determinants of how inflation will look like in the coming quarter.

RBI Governor Shaktikanta Das in the MPC meeting on December 7 said that the worst of inflation is behind us, but there is no room for complacency in the fight against price-rise.

"Inflation is cooling across the world on softening of the commodity and the oil prices, but we cannot be complacent despite the positive news on inflation," Das said.

Analysts at Kotak Institutional Equities expect the RBI to hold peak policy rate at 6.25-6.5 percent for most of 2023 as the central bank gauges the impact of monetary tightening on inflation.

According to Sanjeev Prasad, co-head, institutional equities at KIE, CPI inflation will stay above 5 percent for most of FY24 and core inflation will be closer to 6 percent.

2. 'Russia does something unpredictable'

Russia's invasion of Ukraine in February 2022 triggered havoc across the world. Commodity prices surged, supply chains were disrupted and equity markets tumbled.

"We are ready to negotiate with everyone involved about acceptable solutions, but that is up to them — we are not the ones refusing to negotiate, they are," Russian President Putin told Rossiya-1 state television in an interview aired on December 25.

No analyst or economist could have predicted this war. And no one can predict what happens next.

3. China drives to become numero uno

China is slowly easing its zero-COVID policy and is all set to reopen its borders in January 2023, after three long years.

As the Chinese economy remained under pressure all these years, its weightage in MSCI Emerging Market index fell from 38 percent in 2020, to 31 percent in 2021 and now stands at 26.89 percent.

As a result, India’s weightage in MSCI Emerging Market index rose from 8 percent in 2020 to 12 percent in 2021, and is now at 16.21 percent.

With China now opening its borders and firing its economic cylinders, it remains to be seen which way foreign investors head to in 2023.