World Bank's recession warning: Should equity investors be fearful now?

NEW DELHI: With the Sensex having lost over 3,400 points from all-time high of 63,583 touched on December 1, bears seem to be having an upper hand in the stock market now. What could make matters worse is the fear around recession, which just got louder with a warning from the World Bank that the global economy could easily tip into recession in 2023.

While the World Bank expects the Indian economy to grow at 6.6% in FY24, the effect of a gloomy mood in other global markets could spill over to India as well.

Veteran investor PMS fund manager Siddhartha Bhaiya warns that a lot of companies are priced to perfection and they end up suffering more. “A lot of this is already visible on prices of global companies like Amazon, Google, Nvidia, Meta, etc. We are not de-coupled. We, too, will see some challenging times, especially in the sectors that are richly valued, but eventually we will sail through due to our higher percentage of domestic share in GDP,” he said.

The year 2022 didn't prove the theory that when the US market sneezes, the Indian market catches cold. While Sensex ended 2022 4.3% higher, the Nasdaq dropped 33%.

Amid robust domestic flows, Dalal Street’s dependence on FIIs have decreased since Covid. The trajectory of Indian stock indices will be determined by the Indian economy and Indian money, said Sunil Damania, CIO, MarketsMojo.

Analysts also point that being a forward-looking animal, the market would have already factored in global recession worries as investors were aware of this high probability event since the past few months.

“Hence, from an equity market standpoint recession may be just another risk event but not the top risk event for CY’23 considering the fact that it is not an event which has struck the markets out of the blue, albeit the certainty of the event seems high,” said Kaizad Hozdar, Investment Advisor, TrustPlutus Wealth.

For domestic brokerage firm Prabhudas Lilladher, India is in a sweet spot led by strong domestic demand base, large agriculture production for food grains and aggressive infra spending by the government.

"We continue to believe that the structural story in India is intact and believe that defence, capex recovery, credit growth revival, rural demand and healthcare services are key investing themes for 2023," said Prabhudas' research head Amnish Aggarwal.

The brokerage has a base case target of Nifty at 20820 by the end of the year.

Global brokerage firm Credit Suisse had said while growth concerns are likely to intensify globally in 2023, India’s growth trends may remain resilient given the country’s macroeconomic stability and well-controlled inflation.

"While India may not be fully insulated against global headwinds and some slowdown from higher levels is likely, India’s healthy domestic macro environment does provide a partial offset," Credit Suisse's Premal Kamdar said.

He expects moderate returns in 2023 and recommends buying on dips selectively given the constructive view of the Indian market in the medium term.

World Bank forecast

The World Bank expects India to be the fastest growing economy of the seven largest EMDEs (emerging market and developing economies). "Growth is projected to slow, to 6.6 percent in FY 2023/24 before falling back toward its potential rate of just above 6 percent,” it said in a report.

The global economy is estimated to grow at 1.7% in 2023 - this is the slowest growth that we will see barring 2009 and 2020. “In both above mentioned years, we had central banks globally, which increased monetary supply to increase growth. This time, however, these are central banks themselves, which are engineering this slowdown to remove inflation, which was a consequence of excess money printing during Covid,” said Bhaiya, Founder and Fund Manager of Aequitas Investment Consultancy.

He said as the central banks tend to oscillate from one extreme to another, they may end up tightening more than what major economies can bear could tip a few large economies into recession.

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