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Wright Balanced Multi Factor REBALANCED!
(2 Jan 2023)

Wright Balanced   Multi Factor REBALANCED!(2 Jan 2023)
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We upgraded our models this month! This means we included the research done over a number of factors in the portfolios. For Momentum, we have observed that Earnings Momentum is working stronger than Price Momentum in the current market scenario, which is why we have pivoted to including Earnings Momentum in our models as well. We have slightly enlarged out universe as well.

We are making a big change in our model at the beginning of the year – expanding the universe and adding new factors. Please bear with the significant churn this month.

Performance

Last month the momentum portfolio outperformed the benchmarks. 

Changes

Sector Allocation

The sector allocation has shifted to include more banks, insurance, metals, gold and oil & gas stocks.


New Year is the time to – make predictions! 

And if we could accurately predict the stock market, we’ll all be rich. But still, this year, we tried to gauge our understanding of the market outlook and form some informed opinions. And not just that, we also had a little help – from you!

We posted a series of polls about stock market predictions on our social media and got some interesting answers. 

Let us look at the outlook for the market in 2023! 

But if you do not want to read through the post, we also did a Youtube video! Check it out:

1. Where will the market go in 2023?

The market is entering the new year with a consolidation. There are rising fears of a recession in the US and concerns about the overvaluation of Indian equities compared to emerging markets. But still, I have a positive outlook for the Indian market as India still has the highest projections globally in terms of growth which justifies the high valuation we demand. 

We do expect the January effect to come into play and we expect the budget linked sectors to rally. The Nifty deserves to command a high multiple for several reasons – India becoming an alternate manufacturing destination for the world, India leading in the public digital and financial infrastructure space, domestic focus on job-creation and ease of doing business. The RBI inflict expects India’s growth to be 7% next year, and the world bank looks at 6.9% growth which is among the highest in the world.

So in 2023, while the Indian markets might get dented by the global recession, they will not drown.

2. Which sectors are expected to do well?

The Indian economy coming out of the pandemic will remain resilient. As inflation eases, many sectors will remain buoyant, especially domestic consumption, travel, and hospitality. Banks have come up strong with rising credit growth and much more robust balance sheets, and they will flourish in a rising interest rate environment. With the budget in view, we are excited about the infrastructure segment, especially stocks linked to defence and railways. 

There are other industries like sugar, fertilizers, textiles, paper which are flourishing due to subsidy linked announcements. We are quite bullish in the capital goods space as well as the private investment remains strong in India despite global volatility, The government is incentivizing domestic manufacturing and defence indigenization and private sector is seeing capex in energy transformation, emerging tech and warehousing. 

3. Which sectors to avoid?

 In a growing economy, we import more, but the exports will suffer as global growth slows down, and this will cause concerns. In a worldwide recessionary environment, sectors whose earnings are linked more to the global market, like Pharma and IT, will be impacted and see downgrades.

4. What are the Emerging Themes for next year?

  • Capex – private investment remains strong in India despite global volatility, The government is incentivizing domestic manufacturing and defence indigenization and private sector is seeing capex in energy transformation, emerging tech and warehousing.
  • Budget – with the budget coming in the beginning of 2023, the sectors that the government is looking to focus on like – manufacturing, defence, sustainability, railways, public sector banks are already seeing fresh investments
  • Banking Sector Improvements – Asset quality, corporate loan portfolios and earnings have improved for public sector banks. PSB’s strong performance will be supported by higher margins, continued credit growth and improved trade debt over the next few years

5. Will there be a global recession in 2023?

Elon Musk recently came out with a stark warning against a US recession next year if the FED keeps hiking rates, and he’s not alone. Economists worldwide have started warning against the fear of a Global recession.

The recession probability index published by the US Fed that looks at the spread between 3-year and 10-year treasury yields shows a heightened Recession fear. Other economists who use several other statistical models and prediction techniques based on economic data to forecast recession are also seeing warning signs. The heightened inflation, rate hikes that are decelerating growth, and the strength of the US dollar are some of the culprits.  

Q: Is the market overvalued or is still worried about expected Fed rate hikes?

Our market has been the most robust over the last year and is at a much higher valuation multiple than many emerging markets. For example, the valuation ratio for the Nifty is running at a 134% premium. But we are not in the overheated zone if you look at the PE ratio compared to historical values. 

While India still has the highest projections globally in terms of growth, the impact of slowing growth has already been felt in India, so in the scenario of slowing growth, many might call the robustness of prices in India a little overheated.

Q: Is the market pricing in expected growth concerns due to the likely global recession next year?

The growth concerns are not priced into the market prices, but the rupee tells another story. The valuation multiples that the Nifty is at are not the numbers that hint at a likely escalation but, in fact, hint at solid growth. The Nifty deserves to command a high multiple for several reasons – India becoming an alternate manufacturing destination for the world, India leading in the public digital and financial infrastructure space, domestic focus on job-creation and ease of doing business. The RBI inflict still expects India’s growth to be 7% next year, and the world bank looks at 6.9% growth, but these numbers could be impacted if the recessionary fears in the world escalate.

Q: Do you think the earnings growth will likely be impacted? 

The Indian economy coming out of the pandemic will remain resilient. As inflation eases, many sectors, especially domestic consumption, travel, and hospitality, will remain buoyant. Banks have come up strong with rising credit growth and much more robust balance sheets, and they will flourish in a rising interest rate environment. In a growing economy, we import more, but the exports will suffer as global growth slows down, and this will cause concerns. In a worldwide recessionary environment, sectors whose earnings are linked more to the global market, like Pharma and IT, will be impacted and see downgrades.

Q: Is the debt market looking attractive?

Debt has increasingly started looking attractive as interest rates have risen. The long-duration rates might have little demand as the rates will not be this high for too long, but the short to medium-duration debt is quite attractive. As a result, we are seeing a lot of buzz all around about debt products, which is a direct function of the attractiveness of the debt market in a rising interest rate environment.

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Wright Balanced Multi Factor REBALANCED!
(2 Jan 2023)
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