2023 can't be a repeat of 2022 if we do not address macro risks right away: Ganeshram Jayaraman

“Growth drivers are getting impacted as we go into CY2023 or FY2024. It could have an impact on volume growth assumptions pencilled in by the Street. So there could be some bit of earnings downgrades which might come as the year goes,” says Ganeshram Jayaraman, MD & Head of Institutional Equities, Avendus Spark

The Indian market seems to be falling in line with global markets. Last year, we had a big spell of outperformance. What is your hypothesis for Indian equities for 2023?
As a year, it is beginning to look a little shaky to us. We are not very confident that 2023 can be as good as 2022 to us. There are lots of issues. Firstly, to start with, we think this year the macro can be more challenging than it was last year. When last year began, we had a huge surplus flow of surplus liquidity. So even though the oil prices went up, we had huge FII selling. We also had central banks globally hiking rates. India could absorb it because we had a lot of shock absorbers. But right now they are walking on pretty thin lines.

The liquidity in the banking system is just about marginally positive. Some days ago, it was negative and we have a lot of foreign debt being repaid by corporates taking local debt. The credit growth difference between credit and deposit growth is just too wide. Interest rates in India can rise. We think the macro layout as it stands today looks a lot shakier for India this year than it did last year.


So, keeping that in mind, we are watching whether the macro signals can be better. Of course, if oil falls, if the dollar weakens, this can help India get better but we are pretty much depending on imponderables or uncontrollables which need to be in our favour. So we are watching whether that turns in our favour.

If we are able to take policy measures to get portfolio flows or to get foreign flows or to get the domestic liquidity much better, we need to watch. If not, we think interest rates could be a dampener this year. The currency could be a lot weaker, We could see liquidity being available for growth requirements moderate and that could have an impact on potentially the leverage demand for SMEs or it could be autos, it could be property, it could be a capex cycle. There we need leverage demand.

Growth drivers are getting impacted as we go into CY2023 or FY2024. It could have an impact on volume growth assumptions pencilled in by the Street. So there could be some bit of earnings downgrades which might come as the year goes. For valuations, you look at three things – macro margin of safety, look at earnings and look at valuations. Valuations are not reckoning things to get weaker. Almost 75% to 80% of the stocks are trading at valuation multiples which are beyond comfort zone or may be 20% costlier than where we would ideally recommend clients to buy into.

We need to keep it in mind that for that to happen, volume growth needs to be very good, operating leverage needs to be firing on all cylinders and raw material prices to be benign. Even gross margins are healthy. All these need good macro and the core is that if the macro tailwinds wane away, we could have earnings downgrades and if the earnings sees some downgrades in valuations, we can also see some downgrades. We might end up having a difficult year to have any outperformance. So 2022 repeating in 2023 can be a challenge if we do not address the macro risks right away.