Concerns increased in equity, bond and currency markets due to global factors

- Fear of further downside will disappear as India's high valuation declines

The financial crisis deepened after the collapse of three banks in the US and this has affected equity investment sentiment over the past week. High interest rates in the US have also caused problems. India may underperform global peers in 2023 due to expensive valuations. The problem has also been compounded by high US interest rates and rates are expected to remain high. Due to higher yields, the value of equity and debt assets will be affected. It will have a direct impact on the finance sector, but the economy at large may also come under its grip. Which is causing concern in the Indian equity/bond and currency markets. High valuations of companies in India are softening. The market is anticipating a possible sluggish recession, slowing income growth. However, long-term investors should not worry. The next one to three quarters will prove to be a good time to buy shares of good companies. Given the problems in the US banking sector, monetary policy will be less tight in the near future.

We maintain a neutral outlook on equity markets for 2023 and expect India to underperform compared to the developed world and other emerging markets due to its expensive valuations and fears of recession. The second half of 2023 and calendar year 2024 are expected to be better due to less tight monetary policies. As India's high valuation declines, the fear of further downside will disappear.

Direct investment by retail investors in the cash segment will continue at a slower pace. However, investing through mutual funds is strong and is a very strong trend. Trading by new entrants (whose numbers increased rapidly during Corona) has been reduced, while long-term investors are focusing on a 'buy on deep' strategy. Average daily turnover in the cash segment of the market has fallen by more than one-third year-on-year so far in calendar year 2023.

A balanced portfolio of 40 to 60 percent in equities is recommended, depending on the risk appetite of the investor. The current consolidation has improved risk-reward for long-term investors. Market volatility may remain in the short term and investors may increase exposure to equities from 60 per cent to 70 per cent by the end of 2023, depending on their risk profile.

Analysts suggest investing in Pharma, Power (Renewable Energy), Infra, Construction and FMCG. However, keeping in mind concerns regarding heat wave and El Nino, investors are advised to reduce exposure to the FMCG sector. Also, from a long-term perspective, a positive trend will be seen on IT and chemical stocks.