Reflecting on the Year End & Answering What Comes Next
with Divam Sharma, Co-Founder of Green Portfolio Answers

FY23 has been a commotion, an emotional rollercoaster for retail investors, and a game of patience for institutional investors

This is how markets work, a period of stellar returns followed by consolidation. We are now looking forward to the next cycle.

Despite the rapid slowdown and pivot by the central bank, concerns remain for the US banking sector. The Fed has been extremely cognizant, and now the markets are pricing in a pivot in 2023 itself.

The probability of easing interest rates in the Fed’s July meeting is at 45 percent, and this was 0 percent a month ago. This shows how responsive Fed is expected to be in light of the recent banking crisis. From what we sense from the markets and given probabilities, we should see an easing of interest rates in the latter half of this year.

Central banks will fight tooth and nail to contain the recent dilemma. When the yield curve is inverted and bank deposits are fleeing to money market funds, small and regional banks would find themselves in a difficult spot. The FDIC or the Fed will not directly or indirectly take up the burden for all the banks – SVB and Signature bank were an exception as clearly laid out by them.

In contrast, RBI would take a longer pause than the Fed given the resilience of the economy and the stable position of the Indian banking sector. We will have Monetary Policy Committee’s first policy meeting for FY24 in April. We should see the last interest rate hike before we take a long pause by the RBI.

Recessions in the EU and the US have become a market reality, meaning, we believe a recession is already being reflected in market prices. The banking crisis has added fuel to the fire, but if you see, even without significant government intervention unlike the 2008 crisis, private players are stepping up to save the show.

We expect a significant upside from here. If you ask me about what all negative factors are being priced in, I am in a position to write a book. On the flip side, there are no positives that are being priced into the markets, and this is when we know we are bottoming out. The exodus of retail investors, the Adani debacle, recessionary expectations, and the rapid rise of interest rates have dented the markets.

Views on Defense Sector

The time is ripe for rotation, and we have reduced our weightage away from defensives. With interest rates expected to peak by April, growth stocks would do well from here. The broader market has stagnated for too long. Yes, when you look at the recent results, the margins have deteriorated by 200-300 basis points, but the markets have gone over the top. We should witness a recovery in growth stocks in the medium term.

Views on IT Sector

Financials and retail are the largest business segments for the IT sector. And geographically, they have heavy exposure to the Americas. With recessionary and banking crisis fears stemming from the West, it will take a while for IT stocks to return to their previously seen growth rates.

The Way Ahead with Green Portfolio

We believe Pharma will outperform in FY24. There are underlying green shoots visible in the sector. The sector has underperformed since 2021. While all the negatives are factored in the valuations have become comfortable. We like names across segments in the industry. PLI, import substitution, and rise in exports will significantly ensure outperformance for the sector in the coming year.

On a high level, we are in constant touch with investors and ask them to consider increasing allocation to equities through lump sum rather than SIP at this juncture.

Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.