The report suggested that domestic investors ownership of Indian equities has grown to an all time high of 14%+.
The report highlights that valuations have come off with earnings growing faster than the market caps but they are still high on an absolute basis and also higher than long-term average. Nifty one year forward PE is currently 23-23.5x. It had declined to 20x few months back which along with cyclical recovery attracted incremental inflows. “The headline valuations for Nifty Midcap 100 suggest that we are in an acceptable zone which can act as a platform for the broader markets to continue to do better. Midcaps in a growing market with market leadership and low leverage may be considered on par with large caps,” the report said.
The fund house also spoke about the sectoral performance in the market in 2022. “PSU Banks made the highest gains while the IT sector was the biggest laggard. Banking sector has started to get its due with all the three levers of profit growth firing i.e. credit growth, margin expansion and lower credit costs. The IT sector suffered due to margin pressure and talks of global recession. The pharma sector spent another year weathering the price pressures,” said the fund house in the report.
The fund house noted that 2022 was a difficult year for global equity markets. The direction was primarily decided by the war in Ukraine and central banks’ war on inflation. However, it also noted that the last quarter of 2022 brought some relief in terms of expectation of softening of the rate hike trajectory and peak terminal rate likely to reach in by Jun-23. The other good thing for the market, according to the fund house was soft landing in terms of growth likely followed by revival helped by lower inflationary pressures, rate cut, softening of strict zero Covid-19 policy in China and a lower base.