Abysmal Returns Of 2022 May Be Template For Years To Come, Says Kotak Securities
Indian stock market returns in 2022 were abysmal, with the Nifty 50 delivering 4% in rupee terms and a negative 6% in dollar terms
The poor market returns of 2022 may become the template for the next few years, according to Kotak Institutional Equities.
The Nifty 50 gained 4% in rupee terms and fell 6% in dollar terms last year, given the busy year in terms of news, Kotak said. The year was dotted with developments like the Russia-Ukraine war, Covid-19 reopening, quantitative tightening by central banks, and extreme weather.
Analysts at Kotak cautioned that heightened geopolitical risks and rising interest rates would keep returns muted in the years to come.
Prolonged tension in Ukraine would adversely affect economies in Europe, Kotak said. Adding to this, the monetary tightening by central banks across the globe to fight inflation, wrote Kotak analysts Sanjeev Prasad, Anindya Bhowmik, and Sunita Baldawa in a note.
Even though the ongoing reopening in China would spark a rebound in economic activity, the country’s demographics are quite challenged, Kotak said. Moreover, investors are likely to see the impact of large climate change-related uncertainties on their returns, the note said.
"We expect lower returns across asset classes (bonds, equities, real estate) in an era of normal interest rates compared to very high returns in an era of low-interest rates in the past three decades," Kotak said.
The Indian market as well as growth stocks are trading at expensive valuations, which pose risks to market performance, it said. Meanwhile, banks and non-bank lenders are trading at reasonable valuations, barring a few cases.
Kotak Securities revised its model large-cap portfolio in 2023 to include SRF Ltd. as it is trading at 25.2 times its estimated earnings for FY24, and its valuations have become more reasonable after 13-14 months of trading in a narrow band. The stock's 12-month fair value at Rs 2,830 apiece, implies an upside of 24%, Kotak said.
The brokerage has cut positions in the Nasdaq 7HANDL Index ETF, ICICI Prudential Life Insurance Co., HCL Technologies Ltd., Infosys Ltd., Tata Consultancy Services Ltd., and Tech Mahindra Ltd. to make room for the new entrant.
Middling Year For India
The Indian stock market delivered muted returns in 2022, despite "all the hope and hype", Kotak Securities said.
Public sector companie, financials, and consumer staples outperformed the market, while IT services, healthcare, and realty underperformed the market. The large-cap indices fared better than their broader market peers, Kotak said.
The performance range too was very wide, with 51 stocks in the Kotak Institutional Equities' coverage universe delivering greater than 20% returns and 53 stocks delivering less than 20% return in 2022, the note said.
