During 2022, neither Equity nor Debt really performed
well, but India was the bright spot in a year dominated by
high inflation and increasing interest rates. India has been
marginally up when the Nasdaq has been down over 30%.
Nifty too reached all-time highs but that is after a year of
correction and then recovery. Gold was the
best-performing asset class, thus proving to be a good
hedge against inflation and currency debasement.
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RETURNS
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Nifty 50 |
5% |
Midcap 150 |
4% |
Small Cap 250 |
(-3%) |
Long and short-term debt |
around 3%+ (as interest rates were
rising LT debt made capital losses) |
Gold |
14% |
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2023 – Views from around the world
Blackrock, the world's largest Investment manager (US perspective)
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Blackrock currently has US$ 9.7 tn under management -
they cover all asset classes. The 40 years of moderation,
where there has been stable growth, and stable inflation,
is well and truly over. A recession is foretold, and Central
Banks are on course to overtighten policy as they seek to
tame inflation. They are tactically underweight developed
market equities. They expect to turn positive on risk assets
around mid-2023, although there is unlikely to be a
roaring bull market in the Developed countries.
- Guarantee recession in most of the Developed
countries.
- Change in how the rest of the world is operating, and
that change is likely to become permanent. Almost a
return to the "Cold War" era, moving away from
Commercial considerations to Political ones. There
will be changes in the supply chain, which will cause
shortages and increase costs.
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- Aging population in the developed world - which will
cause a reduction in productivity. Normally the US
would outsource more, but with the changing Global
Order, this may not be possible. Hence a double
challenge
- Moving away from fossil fuels to cleaner energy will
increase costs in the short term. That will drive up
inflation too.
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Jim Rodgers (US Perspective)
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- 2008 was a problem because of debt, which was
kicked down the road. The world economy has been
spending - the US has never increased their debt as
fast from US$ 9 tn in 2008 to US$ 31 tn now. There are
only 2 choices:
- - Allow widespread defaults
- - Debase the currency with inflation - which is more
likely to happen.
- Interest rates hike will first hit the mortgage payment-
but it will spread to everyone. Interest rates went up to
nearly 20% in the 1970s to tame rampant inflation, but
at that time the US was a creditor nation, which
remained so until the 1980s. In history, currently, the
interest rates are not so high but have gone up from
nearly zero rates. Being so large a debtor nation it
would be difficult to increase too much more.
- There have been recessions since the beginning of
time. However, this is likely to be a deep recession
because debt is out of control. Unemployment will go
higher and housing will fall. Plan for it and one can
come out of the recession, very rich.
- When the US weaponized the financial system
against Russia, it sent a signal to the rest of the world.
The world has had many reserve currencies but none
of them has lasted for more than around 100 years. In
the 1920s Britain was the most powerful country in the
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- world and it had no competitors, and in 1976, Britain
was bankrupt and had to be bailed out - just took 50
years. It is sinking in that there has to be a different
Reserve Currency and it is a process. Slowly bilateral
deals are happening. There is talk of ending
PetroDollars and Saudi joining the Brics. Also,
payments are happening in Gold, which is in effect the
gold standard coming back again.
- Gold has been a means of payment for Centuries, and
silver even longer. In Asia, there has always been a
cultural appreciation for precious metals. It is said that
11% of the global gold holdings are held by Indian
households. It is historic that when you get suspicious
about the rulers, the best store of wealth is gold/silver.
There is a massive West-East flow of precious metals
these days.
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Sankaran Naren, CIO ICICI Prudential AMC
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Could never have imagined that US$ 30 bn of FII selling
would not make a dent in our markets, and we have
reached again all-time highs, all due to the power of
domestic buying. There is a 20% rally from the June low.
However, the prediction did come right that 2022 would
not make great money for the investors.
The difference in 2023 is:
- In 2022, the interest rates were very low, and there was
no alternative. Now interest rates too are attractive at
over 7%
- Non-SIP flows are going into debt as well
- Inflation will become less of an issue in 2023. Interest
rates in the US likely to settle around 5%
- However, growth around the world will slow down. In
India, there has been a 20% earning growth, and our
valuations are not cheap. Hence a slowdown in
earnings is likely to make the market volatile.
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- Emerging Market, as an asset class, will come back in
2023. The dollar is likely to have peaked.
- Gold will do well when Fed does a pivot which is likely
to happen in 2023
Look at a MultiAsset fund which can invest in equity, debt,
gold, silver, InvITs, etc.
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Nilesh Shah, Managing Director, Kotak AMC
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The markets are at a record high level, and valuations are
a bit above average hence we are not expecting the
earnings to go on growing rapidly. There are certain
trends where there are opportunities over the medium to
long term:
- Revival in consumption after a slowdown. However,
we need to see whether consumption at the lower
income levels, which was highly impacted by Covid
and become more leveraged, also starts improving.
- Investment revival – The government was already
investing, but companies are redrawing the CAPEX
plans. This is in spite of the fact that the IIP numbers
show a slowdown in manufacturing.
- - Capacity Utilization is now at 75%, which is the
threshold of new capacity investment.
- - Corporate India's balance sheet is relatively
strong. It has deleveraged more than 12% since
the subprime CAPEX boom.
- - Banks’ balance sheets are healthy, and their NPA
levels are at decadal lows, and they are willing to
extend credit.
- Rural economy is now recovering.
- For more than a year, US inflation has been higher
than Indian inflation, which has never previously
happened. There has to be a balance between
inflation and growth - the story in 2022 has been
inflation - in 2023 it is going to turn to growth.
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- India is growing faster than the rest of the world, and
this gap is being funded by the Trade Deficit. We are
running a trade deficit of about US$ 100 bn more than
we can afford, which can happen for a year or so - but
not indefinitely.
- Global cyclical are going through a tough time as
growth is slowing down. Therefore it is unlikely that
the equity market will give massive returns. Hence
follow your asset allocation. Put short-term money in
debt and long-term money in equity as it will deliver
positive real returns.
- India has outperformed the globe in 2022 and the law
of averages states that we should return to mean.
Hence other emerging markets and China, as it opens
up, can outperform in 2023.
- The gap between debt fund returns and equity
returns is likely narrow.
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Sandeep Tandon, Quant AMC
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- Tag line is Multi-asset / Multi-manager - where each
manager is a specialist in a particular field. You need
to change the management style as per the situation.
Paramount is risk analysis. Valuation gives the entry
point but not the exit point. Liquidity analysis and Risk
analysis need to be taken into account. Timing is
important.
- If India continues to outperform, FIIs would be forced
to participate. Money moves from a high-risk to a
lower-risk environment. As the US goes into a
slowdown, we are likely to see sizable inflows in the
Indian market.
- When there is a consensus that the US is going into a
recession, and the yield curve is strongly inverted
which is a sign of impending recession, then it may
not happen immediately. It will take a few years for
the US to reach a crisis state, and hence is not so
directly pessimistic about the US.
- The strategy of buying on dips will continue. Even
though the market is at all-time highs, people have
not seen phenomenal returns. HNIs and FIIs have not
participated. It is the retail investor that is in the
driving seat. Have to play sector/stock rotation nimbly
and can't stay married to an industry or a stock. The
value would come first for the whole decade - and
growth at any price will take a backseat.
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- Our real competition to FII flows is China. In the short
term as China has been beaten down so severely, they
may outperform - but India is structurally very strong.
So India is in a very favourable position over the next
3-5 years.
- 2024 is an election year, and 2023 would be the last full
budget, which could be a bit populous. However, the
relevance of the budget has come down. Policy
changes come throughout the year. Gujarat elections
show that BJP is likely to win the general elections.
Taxation can be affected in the Budget.
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The market is going to continue to be volatile until the US
Federal Reserve pauses rate increases. When the US
economy slows down, and bankruptcies start rising along
with unemployment - then the Federal Reserve is likely to
decide to pause interest rate rises and, at some stage, start
cutting rates. The last few Inflation readings have been
encouraging. With China opening up and with their
stocks having been beaten down so much - it is likely that
some FII funds move there. However, growth is seen in
Asia, and India is in a structurally very strong position, as
mentioned in the last note:
- Demographic - India's workforce is still growing, and
hence productivity is still growing
- De-globalization - China + 1 - Already "office" to the
world, and manufacturing is growing too.
- Digitization - we are very strong here, and with India
Stack will grow in leaps and bounds and transform the
way we do business.
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- Decarbonization - In India, energy consumption and
energy sources are changing simultaneously
Hence this year, continue your SIPs and STPs. Further,
continue to add equity at all dips. This year, returns may
be moderate, but the next 5 years are looking
phenomenal.
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With a 7% yield, debt markets are also looking good. After
many years the real return is positive, and this too, is an
attractive asset class to invest in. Over a 3-year holding,
the investment becomes tax efficient, and as the interest
rate cycle could also turn in this period - this will give
additional returns.
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The dollar index is likely to have peaked in the short term -
which is good for gold. When the US Federal Reserve
pauses the interest rate hike, gold is likely to go up. On
Government balanced sheet, Gold continues to be valued
at around US $ 35 (now at USD 1800), and many counties
are looking to revalue their gold holdings. Slowly many
counties are moving towards a sort of gold standard. Gold
demand will likely increase as the uncertainty in the
Developed countries goes up. 2023 is likely to be good for
gold.
Last year, the global issue was rising inflation, interest
rates, and quantitative tightening. All asset classes in
India did not do well for most of the year, and returns were
muted. This year the story is likely to be on slowing global
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growth and fears of a recession in the Developed
countries. However, money is expected to flow to where
there is visible growth, and although India is a little
expensive, its long-term structural story is excellent.
Hence continue to keep faith in India.
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AKURDI |
WAKAD |
WANOWRIE |
MAGARPATTA |
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No. 26, Shraddha Regency, ’A’ Opp Kedari Garden, WANOWRIE, Pune-411 040. |
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