2023: A Tale of Two Recoveries

As we unfurl the curtains down on the year 2023, in retrospect I would never have expected the year to end with such returns for equity investors. The roller-coaster journey that was 2023 unfolded in a way that defied all the predictions and expectations we had at the beginning of the year. Initial concerns of a looming recession, prompted by multiple global interest rate hikes, including increments in the US and India, were averted as the year unfolded differently than expected. 

India showcased strong economic strength, surpassing growth projections with a remarkable 7.6 per cent GDP surge in Q2, exceeding the Reserve Bank of India’s earlier estimate. Despite challenges earlier in the year, such as certain US bank upheavals and a significant Indian equity market sell-off triggered by the Hindenburg report, the nation’s banking sector remained resilient amid the turbulence. Entering the closing chapters of 2023, the economic landscape appears poised for a soft landing, characterised by moderate inflation, setting the stage for potential interest rate adjustments conducive to fostering growth.

The trajectory of equity market returns mirrored this journey, commencing with initial negative returns in the higher single digits during the calendar’s first quarter where equity indices generated negative returns for three months in a row. However, the subsequent nine months revealed a shift in dynamics as the Mid-Cap and Small-Cap stocks outpaced their larger counterparts. Key sectors like power, infrastructure and defence emerged as front-runners, bolstered by fiscal initiatives such as substantial budget capital expenditure escalation and strides towards self-reliance in defence with significant orders, thus surpassing budgeted figures.

Looking ahead into 2024, an anticipatory shift towards a ‘risk on’ trading sentiment is expected, bolstered by potential US Federal Reserve rate cuts projected to drive substantial foreign institutional investor (FII) inflows into emerging markets such as India. Foreseeable actions by the RBI, including potential rate cuts, coupled with increased foreign direct investment (FDI) inflows for capital expenditure, paint a favourable economic landscape. The upcoming Union General Election in India can only play a spoilsport if there is discontinuity in the government. Nonetheless, the latest opinion polls and state elections results point towards continuity of the government at the centre.

In essence, 2023 underscored India’s resilience and growth, laying the groundwork for a promising 2024, and hence our cover story this time features a comprehensive ‘Where to Invest’ portfolio. This diversified portfolio spans various sectors and market capitalisations, strategically designed to potentially yield alpha. In our last year’s ‘Where to Invest 2023’ portfolio, we delivered an impressive 36.56 per cent return, which works out to a staggering alpha of 20 per cent over the Sensex!

Remarkably, it doubled the returns of the Sensex, with not a single stock yielding negative returns. Throughout the year, we strategically locked in profits across several stocks. This trend of outperforming benchmarks has become a hallmark of our portfolio, and we foresee a similar trend poised to repeat itself next year. Furthermore, in addition to this issue comprising a comprehensive databank spotlighting the top 1,000 companies, we feature an insightful report delving into the impact of the declining prices of lithium-ion batteries on the electric vehicle (EV) value chain, providing valuable insights into the evolving EV sector.

All said and done, it is time to bid adieu to 2023 and look forward to the coming year with hope and good cheer. As of now, India’s economy is displaying all the right signs for uninterrupted growth and this is relevant to all the major sectors with infrastructure taking the lead and other sectors like FMCG and hospitality back to the good old times of the pre-pandemic days. So, get set for a window view on a flourishing landscape. Happy New Year and Best Wishes for 2024!

RAJESH V PADODE
Managing Director & Editor