Sohum Asset Managers

View - FY23 will be year of consolidation, capital protection, mediocre appreciation. Long term positive, return expectations over next three years should be around 12%-13% CARG % in Index.
Valuation – Nifty (16700 – 14th March 22) will have earnings of 715 in F22 (23.3x), 815 in FY23 (20.5x, 4.9% earnings yield), 925 in FY24 (18x, 5.5 earnings yield). 10 year is at 6.8% so gap of 1.9% is large on FY23. This gap will be 1% at 16500-16800 on FY24 (17.4-17.7x so earnings yield of 5.7% and even if 10 year is at 6.7% reasonable gap to buy equities.
So, feel this year markets will remain in band of 16000-18000 and returns in markets will be back ended. In the near term we will remain in narrow range which will be very good scenario (assuming Ukraine war settled down in next 10 days already in it 18th day)

Globally – US 10 years will move towards 2.5%, Inflation may peak at 8%+ before it gets lower by end of the year, four rate hikes and contraction of Balance sheet from 9 trillion $ to 6.5-7 trillion $ is likely scenario.
Geo-politics and Globally inflation (due to supply side shocks) remains key risk factors to watch.
Positives – Financials (huge opportunity), Capital goods, Retail, Telecom, IT, Metals & Cement (at lower levels looks attractive)
Neutral – Pharmaceuticals, Auto
Negative – Utilities, Oil & Gas, FMCG

Negative / Avoid – Utilities, PSU (need to buy at deep value), EPC companies, Road, Sectors which will surely get disrupted (avoid), Digital companies (be extremely selective, Growth at any price). Supply of paper is high.
Midcap / Small cap – Valuation of quality companies are not cheap, need to be stock specific and need much higher margin of safety. Be very selective. Market will surely throw opportunities in mid/small caps either through correction or time correction (or both).
Market view – Indians are underinvested in Equities, Equity will keep attracting inflow (TINA), No of folios, huge savings potential, Government Balance sheet in much better shape (cleaner), Corporate Balance sheet (almost cleaned up), Individual Balance sheet (well in control), Strong currency.

India is a sweet spot in terms of attracting FDI/FII inflows over medium to long term – Sustainability of growth, demographics, huge opportunity, governance, stability of policy, slow but steady improvement in ease of doing business, strong reserves (clearly position of strength).
Government reforms /RBI reforms – Budget was realistic but spike in Oil prices and prices of fertilizers, certain raw materials can cause cost 60 bln$ - 90 bln$ and have cost push inflation in India and also slow down in growth (expected GDP was 3.5 triliion $ in FY23).
Key Negatives – Certain segments are still in pain – hospitality & high touch (SME space), Credit growth is low, Inflation is high, Input cost inflation is very high due to high WPI, Execution is lagging. Rural is certainly under stress since labor market is weak.

Market Outlook