The Indian share market outshined global markets in 2022 despite global headwinds such as high inflation, rising interest rates, currency swings, geopolitical uncertainties, and the onslaught of FII selling. So far this year, Nifty has gained around 3%, compared to a 10-20% fall in most of the global indices. The outperformance has been driven by a pick-up in capital expenditure by the Central Government, which revived the Indian economy from Covid-led slump. Strong consumption demand, which was reflected in the buoyant domestic macro data points, also augured well for Indian equities.
The combination of these factors has resulted in strong corporate earnings growth of 24% CAGR over FY20-22. Other economic indicators such as GDP and PMI too recovered well post-pandemic, and have maintained their strength since then. This is reflected in the credit growth upcycle which has been growing at a decadal high of more than 15% for the past few months.
Nifty valuation fair
Inflation, which has been a concern so far, has tumbled to an 11-month low of 5.88% in November and has fallen under RBI’s mandated threshold of 6%. Going ahead, with an accelerated push by the government towards capex and expected revival in private investment along with peaking inflation, Nifty earnings are expected to remain robust and grow at 17% CAGR over FY22-24. “Nifty now trades at a 1- year forward P/E of 20x, which seems fair, in our view,” analysts said.
Top stock picks for 2023
Top stock picks
Next year, global factors, like recessionary fears, geo-political risks, and rising covid cases in China could keep the equity markets volatile. US Fed policy actions in 2023 along with RBI’s stance would hold importance as any moderation might encourage markets to pick up momentum. Analysts expect credit growth and Capex to be among the two themes to play out in CY23. Thus, sectors like BFSI, capital goods, infrastructure, cement, housing, defence, railways could be in focus next year.