One of the major highlights of the Indian markets in CY2023, according to a latest Motilal Oswal India Strategy Q3FY2023 report, was the sharp outperformance of mid and smallcap stocks. In 2023, the Nifty Midcap 100 was up 47 percent year-on-year (YoY) and the Nifty Smallcap 100 index was up 56 percent YoY.
At the end of CY2023, according to the analysts, India ended "on a high note" with the Nifty 50 delivering 20 percent returns, marking the eighth consecutive year of a positive close. This performance, the report said, was driven by expectations of a peaking rate hike cycle, moderating inflation, improving liquidity, and consistently rising retail participation in equities, along with strong corporate earnings.
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Additionally, the state election results during late 2023 further strengthened the expectation of political continuity (post this year’s general elections). Even on a long-term basis, the report added, India was the top performing market with a CAGR of 16, 15, and 13 percent over three, five, and 10 years, respectively.
Resilient Domestic Flows
Another major highlight of CY2023, according to Motilal Oswal was resiliency of domestic flows. While the year saw FII inflows turn around to around $21 billion in CY2023, against $17 billion in CY2022, domestic flows, the report added remained resilient at $22 billion "amidst hectic primary and secondary market activities".
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Earnings highlight/expectation
According to the brokerage, overall Nifty earnings are likely to grow 10 percent YoY in Q3FY24 with EBITDA margin (ex-Financials) likely to expand 50 basis points to 19.5 percent. Overall, the brokerage expects earnings growth to be driven by domestic cyclicals. On the other hand, they estimate that technology sector could report its first YoY earnings decline of two percent in 26 quarters.
Broad-based growth
According to MOSL, CY2023 witnessed broad-based growth with all indices and sectors delivering positive returns. Recovery in CY2023, for underperforming sectors like Real Estate, Capital Goods, PSUs, Industrials, Defense, etc., led the rally with the biggest gainers in Real Estate, Capital Goods and the Auto space. High-frequency data, the report adds, indicates that earnings momentum will continue to remain intact in 2HFY24.
Motilal Oswal remains overweight on Financials, Consumption, Industrials and Automobiles and is adding weightage in Energy and Real Estate. They continue to remain underweight on Metals, Utilities and IT. In the large cap space, their top picks include SBI, L&T, ICICI Bank, TITAN, Coal India, M&M, ITC, HCL Tech, ABB and Zomato. In the mid-caps space, their picks include Indian Hotels, Godrej Properties, Metro Brands, Angel one, Global Health, PNB Housing, Sobha, Lemon Tree Hotel, Kirloskar Oil Engines and IIFL Finance.
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