India's benchmark Nifty 50 may remain flat until the end of December 2023, requiring investors to focus on "buying at dips", according to Kotak Securities Ltd.
The index is likely to consolidate within an upside range of 1.8% and a downside range of 10% from the current level, the brokerage said.
"If there's a view of the next two to three years, the markets can do well, but in the short term, markets are expensive, and at this level, it is very difficult," said Shrikant Chouhan, head of equity research at Kotak Securities.
However, Chouhan does not expect the Nifty 50 to fall below the lows of 2022, when it touched 15,183 in June.
The Nifty 50 index, in the base case, may hit 18,717 by the end of December 2023, while a bearish index may pull it down to 16,515, the brokerage said. The index was trading at 18,351.50 levels as of 2:30 a.m. o Wednesday.
"The market should consolidate between the base case and bear case scenarios," he said.
However, in a bullish scenario, Kotak Securities expects the index to reach 20,919, a nearly 14% rise from the current levels. "The downside is limited, but the upside is definitely capped," he said.
While downside risks from global factors and the lagging impact of monetary tightening continue to hover over the Indian economy, it has continued to withstand shocks better than other economies.
India has not decoupled but has detached itself from global economies, as evidenced by its resistance to various global shocks, Chouhan said.
Manufacturing tailwinds led by China +1 and PLI schemes, capex recovery, and a cyclical upturn in sectors including real estate, autos, banking, and telecom have helped absorb the global shocks, the brokerage said.
The Indian rupee is expected to face 'huge volatility' in 2023 within a range of 7-9%. And the upcoming year would encompass low inflation and weaker growth. "We expect an overall range of 79.5 to 86.5 on spot."
This can lead to a reversal in the interest rate cycle during the second half of 2023, the brokerage said.
Investment Strategy
Kotak Securities marks the upcoming year as 'the year of investments.' The management suggested focusing on "buying the dips" and avoiding "larger investments" in 2023.
The year may present opportunities to buy, but with at least 12 months of holding onto book gains, according to Chouhan.
Over the medium term, the Indian economy should be supported by a favourable policy environment, the impact of PLI schemes, opportunities arising from the shift of the global supply chain, and the government's thrust on infrastructure spending, among others, the brokerage noted.
Sectoral Picks
The brokerage is betting on sectors that are focused on the domestic market and staying away from sectors that are focused on exports.
Metals, information and technology, and chemicals won't do well in 2023, according to Chouhan.
"For IT... the business is dependent on the U.S. and other developed markets. At the same time, we cannot forget that they will continue to provide services for a long time. We are not expecting any major slowdown. But this third quarter is very important, and after this only we can take a call," Chouhan said, adding that valuations for IT stocks continue to remain expensive.
"But BFSI, manufacturing, engineering, and auto are going to do well," he said. He added that auto companies' valuations are currently 'attractive.'
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