Now that the holiday season is behind, gloomy days are back! The cheer was rather short-lived, lasting all of one week, between Christmas and the new year. What’s causing the market to go jittery again in the new year?
Unfortunately, nothing new!
Jobs in the US remained strong with unemployment at a 50-year low of 3.5%, and the US added 223,000 non-farm jobs in December 2022 (lower than the previous month, but still strong). Strong jobs market = continued rate hikes = continued currency pressure for India
The potential currency pressure gets aggravated for India given the already seen 10% decline through 2022, which came in despite RBI’s aggressive intervention; in addition to the widening current account deficit at 4.4% in 2QFY23, which by the way is at a nine-year high
What do we make of the markets in 2023 then?
Domestic Equities: Although on a structural uptrend, Indian equities are likely to see regular drawbacks and high volatility in 2023. Near-term headwinds in the form of risk to earnings, especially at sky-high valuations are likely to keep the markets bogged down.
Domestic Debt: While interest rates continue rising, the velocity of hikes has reduced. Sometime in the year, the rate hike regime will either plateau or reverse. This makes debt very attractive, especially given that yields are much higher compared to last year.
Commodities: With inflation already showing signs of peaking, we don't see much upside in commodities in 2023.
Gold: Gold can be a good investment option as global investors continue to remain risk-averse.
International Equities: With a third of the world staring into a recession, we see limited potential for international equities to perform well. However, an outlier might just emerge in perhaps China, which is seeing its lows at the moment.
Crypto: Not interested.