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5 Investment Themes for 2023 🧠

Updated: Jan 18

2022 was a tough year to make money in, regardless of whether you have finance bro genes or not.

While Nifty 50 was up only 3% in the year, there were several themes that stood out:

  • Banks made money because of strength in the credit cycle

  • Inflation resulted in the strong performance of Metals stocks

  • Resilient consumption despite inflation resulted in the outperformance of Consumer stocks

  • Value stocks performed well with investors becoming risk-averse in a volatile market

  • Defence did well as the government increased spending, and focused on making more within the borders

When it comes to making money though, this wisdom works with foresight. Analysis in the hindsight doesn't contribute to making money.


What themes are likely to make money in 2023 then?


1. Election Season

With the next General Election scheduled for April 2024, this year will be crucial for the Government to prove itself by recording massive progress during its reign, and hence Union Budget 2023 will be a critical one.


There is a case for the budget to go heavy on CAPEX and continue the thrust on infrastructure development given

  • As a policy decision, the infrastructure push has worked from a growth and public validation standpoint,

  • India needs fiscal support to continue standing out on the global growth stage,

  • Tangible progress on infrastructure is a key focus for any government in the last two years of an election cycle, and

  • With inflation showing signs of having peaked, subsidy bills are likely to come down next year, providing some fiscal room.

If the budget does go aggressive on CAPEX, several sectors will be in the limelight for the next year, including cement, construction, defence, engineering, infrastructure, and rail.


💡 Some stocks to watch out for: L&T, Rail Vikas Nigam


2. Defences Up

The 2022 Union Budget saw a whopping 13% being allocated towards the defence sector, and its efforts for indigenisation led to a 10% YoY increase in capital outlay.


Like clockwork, various defence stocks shot up, giving triple-digit returns in 2022 and making them among the best performers, owing to their resilient race towards self-sufficiency and a unique product mix in the making.


This trend is likely to continue as geopolitical issues continue to encourage governments to spend more on defence, the effort to produce locally goes higher, order books fill up and get fulfilled, and more capital is allotted towards the sector.


💡 Some stocks to watch out for: Hindustan Aeronautics, Bharat Dynamics


3. PLI Mania

The Production-Linked Incentive scheme launched by the Government is a strategic initiative to boost the manufacturing sector in India.


For example, with the cumulative efforts of Foxconn and the PLI scheme, US$ 2.5 billion worth of iPhones were exported from India between April and December 2022, double what was shipped in the entire previous financial year!


Apart from the major contributors like auto, telecom, metals and battery manufacturing, new sectors like food products, telecom and drone technology have been added to the ambit of a projected Rs. 10 lakh crore (33% YoY growth) CAPEX under the PLI scheme in the coming financial year.


Opportunities in the markets are likely to arise in the sectors of auto components, chemicals, electrical goods, and industrial components.


💡 Some stocks to watch out for: Motherson Sumi, Lakshmi Machine Works


4. Debt Isn’t Boring

Although associated as safe and steady, debt funds and bonds look attractive in 2023.

Through 2022, as interest rates increased, bond yields increased too, leading to lower prices, and underperformance of debt as an asset class.


However, if the interest rate hikes stop (or even reverse) in 2023, bond yields will drop, and prices will increase.


Essentially, at the current cheap valuations, you can buy into debt and expect prices to rise over the coming year.


💡 Some funds to watch out for: DSP Corporate Bond Direct-Growth, Nippon India Nivesh Lakshya Fund


5. Made In China

China has had a tough time battling COVID, with its zero-tolerance stance, consecutive lockdowns and restrictions, leading to massive supply chain bottlenecks. The economy suffered massively, and this is clearly visible in the decline of the Hang Seng Index in 2022 by 16.6%!


That has reached a pivotal point as China is reopening itself to business and tourism this year, already bringing the entire Asia-Pacific market into a prospective bull run.


The projected recovery of China can be a strong bet, as the second-largest stock market in the world jumps back into the running after three years of waiting.


💡 Some funds and ETFs to watch out for: Nippon India ETF Hang Seng BeES, Edelweiss Gr China Equity Off-Shore Fund


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