Domestic-linked cos preferred picks for 2023 as recession risks loom over export cos

At a time when recession risks loom over the US and Europe, India’s growth story remains promising. This has seen most analysts playing safe by shifting bets to domestic-oriented sectors for 2023.

When global growth was deteriorating, India was one of the fastest growing economies in 2022 despite facing inflationary pressures.

India’s direct tax collections have grown by more than 30%, bank credit growth has seen strong growth, resumption of travel has seen railway earnings rise 16% on year, about 97% of mobiles used in India today are Made in India compared to just about 8% in 2014.

Capacity utilization is at a 17-quarter-high and quite comparable to the pre-pandemic levels, and private sector capital expenditure has gathered pace.

Further, farm income is expected to grow higher on the back of a good Rabi crop season. And inflation pressures are showing signs of easing.

Moreover, the persistent COVID-led restrictions in China and major slowdown in Europe has forced companies globally to look for alternate sources and this became a major boon for India.

“India has become an attractive option for global manufacturers as we have reduced our corporate tax rates to one of the lowest in the world and have offered incentive schemes (like PLI) to make it more remunerative. All variables are in place for us to capture the share of manufacturing from China,” said Dinsaw Irani, chief investment officer at Helios Capital.

All these encouraging data points have turned growth prospects bright for domestic oriented sectors, making them the top bets for the analyst community.

Motilal Oswal Broking expects two themes to play out in 2023 – credit growth and capital investment.

Motilal Oswal Broking expects sectors like banks, financial services and insurance, capital goods, infrastructure, cement, housing, defence, and railways to be in focus.

It has therefore, picked 14 stocks namely Axis Bank, State Bank of India, Larsen & Toubro, ITC, Maruti Suzuki India, UltraTech Cement, Titan Co, PI Industries, Macrotech Developers, Indian Hotels, Bharat Forge, Westlife Development, Infosys and Apollo Hospitals Enterprise as the top bets for 2023.

For HDFC Securities, 10 stocks, including ACC, Bharat Forge, Chennai Petroleum Corp, Indian Oil Corp, L&T, PNC Infratech, Power Finance Corp, Rashtriya Chemicals & Fertilisers, SBI, and Zensar Technologies are the ones to bet on for 2023.

ICICI Bank, SBI, Bajaj Finance, Axis Bank, Maruti Suzuki, Hindalco Industries, UPL, Patanjali Foods, M&M Financial, Akzo Nobel, Sapphire Foods, Arvind Fashion, Ujjivan Financial Services, Gokaldas Exports are the stocks that JM Financial Institutional Securities is betting on for 2023.

FSN E-Commerce, Maruti Suzuki, Titan, ICICI Bank, SBI Cards, SBI Life Insurance, Hindustan Aeronautics, UltraTech Cement, and Infosys are the top bets for Morgan Stanley.

Brokerage Credit Suisse is betting big on Indian public sector banks as growth has picked up sharply over the last couple of quarters.

“While the pace of growth is unlikely to sustain, growth could remain healthy at 12-14% in the medium term,” it said.



UNPREFERRED STOCKS

As the US and Europe are on the brink of a recession and the fight against inflation is far from over, risks to earnings for companies like information technology that rely on these economies heavily for revenue, are at a risk.

Therefore, most brokerages are underweight on the technology pack and recommend reducing exposure.

“In an environment of likely recession in the US and Europe, valuation and earnings of globally-linked IT services could come under pressure,” BNP Paribas said in its report.

It has removed Infosys from its portfolio, while retaining exposure to TCS.

Defensive sectors like consumer staples, utilities, and telecom are the other sectors that analysts are bearish on, with Morgan Stanley expecting them to underperform in 2023.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)