The equity markets are likely to be volatile in 2023 due to a number of factors that will influence market performance. As SEBI Registered Investment Advisors, we track and reopened to many client queries on the outlook for the next year. Here are some of the key considerations as you plan to start your next year:
Political developments:
One major factor to watch out for in 2023 will be the end of the Russia-Ukraine war, which is expected to have significant political consequences. Other political events, such as elections or changes in government, could also impact the markets. Other geopolitical risks, such as conflicts or tensions between countries, could also impact the markets. For example, tensions between the US and China have been a major concern for investors in recent years, and any further escalation of these tensions could lead to market volatility.
Liquidity & Interest Rates:
The need to balance the need to control inflation with the risk of slipping into recession will be a major concern for economies around the world in 2023. The US, in particular, will need to carefully manage its monetary policy to avoid recession while also controlling inflation. Interest rate movement and liquidity will be key themes to watch out for in 2023, as they can significantly impact market performance. Investors should pay particular attention to market expectations about monetary policy, as this can influence the direction of interest rates.
Covid-19 & Trade
The impact of the Covid-19 pandemic on the global economy is expected to be less significant in 2023 than it was in 2020 and 2021. However, if new variants of the virus lead to higher death rates, it could be a major factor in pulling down the markets. There is a chance that global supply chains may once again get constrained if Covid escalates in China.
The ongoing trade tensions between countries could also impact the markets, as tariffs and other trade barriers can disrupt global supply chains and impact the profitability of businesses. For example, if trade tensions between the US and China escalate, it could lead to market volatility as businesses and investors react to the potential impact on global trade.
Sectors to look for:
Some sectors that may be worth considering for investment in 2023 include agriculture, chemicals, banking, and IT. These sectors are expected to see good YoY growth and EBIT growth and could offer good returns for investors. On the other hand, sectors with high debt and low return on equity, such as real estate and infrastructure, may be worth avoiding.
It is also worth noting that market and sector performance can be influenced by a range of other factors, including consumer sentiment. Investors should be aware of these and other potential risks and consider them when making investment decisions. It is important to be stock-specific rather than simply looking at the prospects for a sector as a whole when making investment decisions. This means carefully evaluating the financial health and growth potential of individual companies rather than relying on broad trends in a sector. Here is where an investment philosophy like Roots & Wings helps a long-term investor.
Conclusion
It is important to keep a long-term perspective when investing in equities. This means considering one’s time horizon and asset allocation, and diversifying one’s portfolio across different sectors and asset classes to manage risk and maximize potential returns. It is also a good idea to regularly review one’s investments, ideally with a SEBI Registered Investment Advisor, and the make any necessary adjustments to ensure that one’s portfolio remains well-balanced and aligned with one’s financial goals.
Overall, the markets may experience a further correction in the first half of 2023 before seeing record highs in the second half. However, it is important to keep a long-term perspective when investing in equities and to consider one’s time horizon and asset allocation. This means diversifying one’s portfolio across different sectors and asset classes to manage risk and maximize potential returns.