The financial year 2023 is expected to be a tough year for the equity markets and investors are unlikely to witness returns similar to the previous year, Motilal Oswal Broking and Distribution said on Thursday. Unlike FY22, wherein the equity markets delivered returns of more than 19% to investors, FY23 will be a tough year amid several headwinds and investors can expect returns in the range of 12-15% by FY23 end, said Motilal Oswal.
The brokerage firm added that though the Nifty has not seen a major earnings downgrade so far, the broader universe is clearly bearing the brunt of commodity cost inflation, which was previously visible even in the 3QFY22 corporate earnings season. With the ongoing crisis between Russia and Ukraine and the rise in commodity prices, the next two quarters are expected to see a sharp margin impact and corporate commentaries will worsen before it gets better.
However, economic recovery and domestic manufacturing will remain the key growth drivers during the year. “We expect market volatility to remain high in the near term, amid global developments. However, the economic recovery, coupled with government focus on capex and domestic manufacturing, would drive the overall growth in FY23,” Motilal Oswal said in its outlook note.
On valuations, the brokerage firm said the Nifty currently trades at a 12-month forward PE of 20x, which remains marginally higher than its long-period average (LPA). The valuations have, however, moderated from 22x in October, when the Nifty made a lifetime high of 18,604, said analysts. It added that investors could look at FMCG, autos and cement companies as contra plays, and accumulate them gradually from a long-term perspective.