Moneycontrol Pro Panorama | Sell stocks in December, buy in 2023? – Moneycontrol

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Dear Reader, 
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 
As 2022 draws to a close, investors are getting more cautious about equities. The Nifty 50 index has eased from its historic highs and lost about 2 percent so far in December. All sectoral indices are trading in losses in Tuesday trading.
The situation is markedly different from December 2021 when the market participants were looking forward to business conditions normalising. Heading into 2023, the mood is not so optimistic.
Rampant inflation has forced central banks to withdraw the COVID pandemic stimulus. Worse, as prices remain high, central banks may raise interest rates for longer duration, slowing demand and global economy. In a surprise move, Japan’s central bank tweaked its long-standing monetary easing programme on Tuesday.
Many fear the Indian markets are not fully reflecting the risks. Even after the recent fall, the Nifty 50 is still up 5 percent in 2022. Analysts at UBS warn a slowing economy will moderate Nifty 50 companies’ earnings growth. As such, early signs of earnings moderation are already visible.
Companies in the IT sector, a large generator of export revenues, are increasingly indicating growth moderation. Accenture, the latest company to report earnings, has warned that customers in certain industries are showing more caution and delaying decisions on contract awards. Earlier, HCL Technologies had said it would be able to achieve lower end of the FY23 revenue growth guidance.
But Indian markets continue to ignore the risks. They are still trading at a significant premium to emerging market peers. “We expect further consolidation in the Indian market over the next few months as it fully digests the negatives of rich valuations, higher-for-longer interest rates and growth headwinds,” warn analysts at Kotak Institutional Equities Research.
Part of the Indian market’s resilience can be explained by the strong inflows from domestic investors. However, as interest rates on bank deposits and fixed income rise and equity returns languish, then flows from domestic investors can ease. This poses risks to market valuations. “As household flows recede, we expect valuations to normalise,” analysts at UBS said in a note.
Of course, the situation can change in 2023. But as things stand today, many market experts see a challenging 2023 for equity markets, a reason behind current investor trepidation. “Post market volatility, once macro debate settles, we expect Nifty to end 2023 at 19,500, implying muted but positive returns,” said BofA Global Research in a note. The index traded at 18,246 on Tuesday afternoon.
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