Valuations for IT sector have turned fairer post the correction. However, earnings downgrade risk remains high given the challenging global backdrop, feels Vinay Joseph, Head, Investment Products and Strategy at Standard Chartered Wealth India.

His investment tips for 2023 - (i) Secure your yield via relative yield opportunities in bonds and large-cap equities (ii) Allocate to long-term value to structural themes in financials, domestic cyclicals and the investment-led themes (iii) Fortify portfolios against surprises via defensive assets and (iv) Expand beyond the traditional via alternative strategies

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Q. Given the predictions of a mild recession, what is your outlook for the market? Any levels you are looking at for Nifty, Sensex?

Given the challenging macro backdrop, we have a neutral stance on Indian equities as stretched valuation premium, both absolute and relative to major peers, is counterbalanced by robust domestic growth and resilient earnings growth expectations. Within equities, we are overweight on large-cap equities given relatively better macro fundamentals and a greater margin of safety in terms of earnings and valuation compared to mid-cap and small-cap equities. We are overweight domestic sectors given a weak global macroeconomic backdrop and greater earnings resilience.

Q. Is IT sector an opportunity now or is there more pain expected?.

We are neutral on the IT sector as valuations have turned fairer post the correction. However, earnings downgrade risk remains high given the challenging global backdrop.

Q. It is advisable to have a diversified stock portfolio. What are the defensive sector(s) where one can look at in 2023?

We believe investors should be prepared for downside surprises given the challenging global macro backdrop. Further, Indian markets have significantly outperformed its peers, indicating a very low margin of safety. Thus, in our view maintaining a defensive portfolio allocation through cash, gold and adding a defensive tilt among equity sector positioning is a prudent approach to ride out any unexpected jump in volatility.

Q. Bank Nifty has delivered over 21% return in 2022. What levels you believe Bank Nifty may hit by end of the current fiscal.

Financials is a key overweight sector. Economic growth recovery has driven a broad-based uptick in credit growth. In addition, healthy corporate balance sheets, improvement in net interest margins and higher loan disbursal volumes are likely to support the sectors profitability in 2023. Higher interest rates are an additional tailwind for the sector supporting yields and spreads. The sector trades cheaper than the market with superior growth compared to other major sectors.

Q. What are the themes expected to work on Dalal Street ahead of Budget 2023?.

We believe it will be prudent to follow a SAFE investment strategy for 2023 : (i) Secure your yield via relative yield opportunities in bonds and large-cap equities (ii) Allocate to long-term value to structural themes in financials, domestic cyclicals and the investment-led themes (iii) Fortify portfolios against surprises via defensive assets and (iv) Expand beyond the traditional via alternative strategies.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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