Mumbai, February, 2023.

India’s economic growth continues to remain strong even in times when the world is facing economic turbulence says DSP Mutual Fund in the February 2023 issue of its monthly report Netra which tracks the latest economic trends and insights. The report highlighted that India’s high frequency indicators remain robust. These include healthy GST collections, near record high volume of petroleum products sold (a proxy for consumption), electronic toll (including Fastag) collections indicating brisk economic activity along with business activity and sentiments being positive.

The report mentions that the recent flat performance of Nifty Index compared to a 26% rally in the MSCI Emerging markets index has resulted in the vanishing of the high valuation premium that India had over its emerging market peers. This is a positive development as foreign inflows in India had become muted lately due to high valuations. Further consolidation and steady earnings growth can cause India to become attractive once again as we progress into 2023.

DSP Mutual Fund feels there is an opportunity in the bond market. Whenever RBI has raised rates, corporate bond spreads have gone up. This monetary policy is least disruptive the reasons being rates are not as high as previous cycle, liquidity conditions are better vs the last hiking cycle, corporate spreads are also not very high. This means corporations can borrow even during the tightening cycle and the rates are also more conducive. This will help in India’s growth from a long-term perspective.

DSP Mutual Fund believes that Banking sector is poised for an appreciation.The current dip in banking equities is another opportunity to add lenders over borrowers. The ratio of NSE Bank Index to NSE Metal Index bottomed out at a time when the yield curve was very steep &RBIwas about to embark on a rate hike journey. The recent correction in Banking stocks & a rally in Metals equities makes an attractive proposition once again. Auto sector is also looking very promising.

The long-term earnings trajectory for the technology sector continues to remain attractive. Investors who have been waiting on the sidelines are likely to get a good opportunity to buy into this valuation and price correction in the technology sector.

“The most important thing for equity markets in 2023 is earnings growth and softening valuations. The last 17 month of consolidation has removed a lot of valuation froth. There is a higher likelihood of better market backdrop going forward,” said Sahil Kapoor, Market Strategist and head of products at DSP Mutual Fund.