Fixed income and debt will make a comeback in 2023, ICICI Asset Management Company (AMC) has said in its annual outlook 2023 report.
The report titled Annual Outlook 2023: Beginning Of A New Era also highlighted investment trends across asset classes, namely gold, equity markets (both globally and domestically), and cryptocurrencies.
Here are the highlight of the report.
Fixed Income – Debt Markets Make A Comeback
According to the report, when central banks raised interest rates, the transmission of it happened at a quicker pace in various capital market fixed-income instruments, such as commercial papers, higher rated bonds rather than in traditional products, such as fixed deposit, among others.
“At present, India is in the expansion category in the economic cycle, and the shape of the interest rate yield curve is flat. The ideal debt fixed-income product investment strategy in such a situation is investment in low to moderate duration funds and accrual type,” the report said.
According to the report, this trend will continue well into 2023, too.
Indian Equity Market Valuations Remain High
According to the report, Indian equity market gave a positive return of 5 per cent, while globally, most of the world’s major equity markets, including that of the US, France and Germany gave negative returns.
Data as shown by the MSCI world Index (developed and emerging market) suggested that investor’s wealth had eroded by 20 per cent in the developing and emerging market, and that in the developed market by 19.6 per cent (MSCI developed market index).
Also as the structural story of India is strong, valuations of Indian equity markets remain high, the report said.
According to the report, as of December 1, 2022, data from the National Stock Exchange suggests that price to earnings (P/E) ratio at which Nifty 50 Index was trading is slightly above the average of 18.9. The price to book (P/B) was also slightly elevated above the average of 2.9, the report added.
Major Equity Markets Delivered Low To Negative Returns
Globally, the top losing equity market was Russia at negative 40 per cent, followed by South Korea at negative 22 per cent. France, Germany, the US, Hong Kong gave negative returns of 9, 12, 9, and 15 per cent, respectively.
Singapore, Indonesia, the UK and Brazil gave positive returns of 4, 4, 1 and 5 per cent, respectively.
Gold May Shine
The report also highlighted the muted returns in gold, which was because of the US Federal Reserve aggressively hiking interest rates by 425 basis points in the current financial year.
As a result of this, the dollar appreciated against most other currencies while gold gave low returns, the report said, adding that gold could shine in 2023.
Bitcoin Top Loser In Value While Dollar Index Top Gainer
According to the report, Bitcoin gave a negative return of 63.5 per cent, which the rupee depreciated 11 per cent against the dollar. The US dollar index (DXY) appreciated by 8.7 per cent.
Gold (Rupee/oz) also gave a negative return of 0.2 per cent, while silver (Rupee/oz) appreciated by 3.6 per cent, the report said.
US Equity Markets Are Trading At Highest 1-Year Forward P/E Multiple
According to data from DAM capital, as cited by the report, Russia is trading at one-year forward P/E of 3, while the US is trading at 17. This is because in the past one year, Russian equity markets corrected by 39 per cent in absolute terms, while the US markets corrected by 8 per cent only.
Taiwan and Japan were the only two markets which gave nil returns in absolute terms over a two-year period, while currently trading at a one year forward P/E of 13 and 14, respectively, the report further said.