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Brokerages' Top Stock Picks For 2023

Here are brokerages' top stock picks for the new year.

<div class="paragraphs"><p>Most Indian banks beat profit estimates over the second quarter of financial year 2023. (Image credit: Micheile dot come/Unsplash)</p></div>
Most Indian banks beat profit estimates over the second quarter of financial year 2023. (Image credit: Micheile dot come/Unsplash)

The year 2022 saw multiple headwinds for global stock markets even though Indian markets were comparatively resilient.

Challenges during the year ranged from repercussions of the Russia-Ukraine war, China’s Zero-Covid policy, and rising interest rates along with fear of an impending recession in some countries.

Indian markets have shown robust performance with the S&P BSE Sensex Index rising nearly 5% when most major global indices fell.

“India’s greatest strength lies in its domestic consumption, supported by a young and large working population with higher disposable income and business confidence," said a report by SMC Research.

"At present, the themes in which India looks attractive are revival of consumption and investment. Consumer sentiment is likely to improve further in 2023 and investors should invest in companies with good outlook, reasonable valuations, and sound management," it said.

Despite the potential structural impact of long-term inflation, Nomura’s base case expectation is that economies will slow down enough for inflation to decisively head lower at a fast pace. Within domestic plays, they prefer stocks that have relatively low earnings sensitivity to slowing economic growth.

According to Morgan Stanley, this is an "exceptional environment" for generating high single-digit returns from high-quality assets, an opportunity that hasn’t presented itself for a long time.

Goldman Sachs remains overweight on banking and financial services, investment cyclicals (industrials, cement), funded by infotech, NBFCs, durables and utilities.

Here’s a list of top two stock picks by brokerages for 2023:

Selection Criteria

  • Top two stocks recommended by brokerages based on the highest 12-month return potential.

ICICI Direct

ICICIDirect said the first half of 2023 "may turn out to be volatile", but it will throw up "attractive opportunities" in domestic-oriented sectors like banks, capital goods, infrastructure, logistics, which will continue to be the beneficiaries of massive capex spend by the government/private sector and recovery in margins/profitability.

"Apart from these, domestic sectors like retail, real estate, auto ancillaries (domestic focused) will also provide good opportunities for the medium to long term," it said.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

Nomura

Nomura is overweight on banks, consumer staples, infra/construction and telecom, while it is underweight on consumer discretionary, capital goods, metals, and IT services. It is neutral on healthcare—as it prefers domestic exposure—oil and gas, and utilities.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

Jefferies

Jefferies remain bullish on the domestic economy/capex and its key picks include large banks (ICICI Bank Ltd., SBI), developers (Godrej Properties Ltd., DLF Ltd.), auto companies (Maruti Suzuki India Ltd., Tata Motors Ltd., TVS Motor Co.), staples (Hindustan Unilever Ltd., Godrej Consumer Products Ltd., Britannia Industries Ltd.) and select capital goods (L&T Ltd., Thermax Ltd., Container Corp. of India Ltd.). 

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

SMC Research

According to SMC Research, corporate India’s balance sheet is fairly strong and is deleveraged by more than 12% compared to the subprime crisis.

Bank balance sheets are healthy and credit growth has also witnessed an uptick, while companies engaged in industrial engineering and capital goods will be beneficiaries of capex revival.

The FMCG sector is expected to do well on the back of a fall in commodity prices and improving demand.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

Motilal Oswal

According to Motilal Oswal, the cyclical upturn in several sectors—including real estate, auto, banking, and telecom, among others—and industry consolidation have led capacity utilisation to recover to long-term average of 75%, which is expected to fuel fresh private investment.

The brokerage expects two themes to play out in CY23—credit growth and capex. Hence, sectors like BFSI, capital goods, infrastructure, cement, housing, defence, and railways could be in focus.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

Axis Securities

The brokerage, in line with others, predicts that the first half of the next calendar year will continue to be volatile.

"Encouragingly, the second half of 2023 is likely to be less volatile than the first one and hence, would likely drive maximum outperformance. As current valuations offer a limited scope of further expansion, an increase in corporate earnings will be the primary factor that would drive the market returns moving forward," it said.

Hence, bottom-up stock picking with a focus on domestic stories would be the key to generating satisfactory returns in the next one year, according to it.

It picked banking and financials as the major theme to watch out for in 2023, on account of their improved economic outlook and the pickup in credit growth. It also listed rural recovery, capital expenditure, home improvement, pharma and high-quality retail as themes to focus on.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

IIFL Securities

The brokerage expects inflation to gradually come off in 2023 and long yields to stay at current levels, based on a comfortable fiscal position. Considering rich valuations in general, IIFL favours a defensive stance and domestic growth stories, with top picks coming from banks, FMCG, autos, and insurance.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023

Choice Broking

Choice Equity's outlook for 2023 suggests sectors such as auto, banking, cement, IT, pharmaceuticals, and real estate as key themes to focus on for the year ahead.

Here are its top two picks:

Brokerages' Top Stock Picks For 2023
Brokerages' Top Stock Picks For 2023