Indian Stocks Set For Consolidation In 2023, Says ABSL AMC’s A. Balasubramanian

Investors should not expect very high returns in 2023 from Indian stocks, according to A. Balasubramanian, chief executive officer at Aditya Birla Sun Life AMC.

Rather, it will be a year of consolidation despite the resilience of the Indian economy in the face of global headwinds, Balasubramanian, who is also the managing director, told BQ Prime.

India's benchmark Nifty 50 was one of the few equity indices to register 2.2% growth in 2022, while in the U.S., both the Dow Jones Industrial Average and Nasdaq Composite declined 8.8% and 33.1%, respectively.

The relative outperformance of the Indian market in 2023 is not a given, according to Mahesh Patil, chief investment officer at the fund house.

"You’ve seen deep corrections in some of these international markets, and you’re seeing a rebound there," Patil told BQ Prime in the same interview. "Don't expect very high returns this year because this year, you’ll see rates remaining higher and liquidity slightly tighter, so valuations will probably normalise," he said.

The broader market valuation multiples, Patil said, are still higher than the long-term averages. However, the fund house is bullish on the earnings growth trajectory in India despite major headwinds globally in the form of a growth slowdown in the U.S. and in Europe.

"We are still expecting earnings growth to be 14–15% CAGR. So even if you see some normalisation in the valuation multiples, which are around 5-7% expensive, market returns should still be in the high single digits," Patil said.

A few sectors, in particular, will likely do well in the new year, such as the banking and financial sector, according to the fund house. Credit growth, according to Patil, should sustain around the mid-teens, and net interest margins and asset quality will also remain stable.

Additionally, companies that are focused on domestic consumption will reap the benefits of improving rural demand. The government is also likely to focus on consumption in the budget this year ahead of the Lok Sabha elections next year, Patil said.

"Outside of equity, investors should seriously look at their asset allocation strategy in 2023," said Balasubramanian. With interest rates nearing their peak, he said, fixed-income investments are presenting opportunities that have been missing for a couple of years. Gold is also likely to continue its upward move, as the dollar is expected to decline against a basket of global currencies, he said.