GDP Growth May Decline After Q1FY23

Published By: Money Control​

Published Date: 14-10-2022

Despite current market conditions presenting buying opportunities, investors should exercise caution as India faces economic headwinds. Ramkumar K, Chief Investment Officer at Reliance General Insurance Company, notes that while many large-cap companies are trading at pre-COVID valuations despite higher revenues and earnings, broader market challenges persist.

The of growth GDP is expected to slow significantly in the coming quarters compared to Q1, threatening earnings projections across sectors. This slowdown, coupled with persistent inflation at 7.4% despite multiple interest rate hikes, creates a concerning economic landscape.

The banking sector shows resilience with non-food credit growth near 16%, likely to maintain double-digit growth as private capital expenditure may offset pressures from rising prices. However, the IT sector faces challenges from global factors, with potential recession in the US affecting international client budgets in 2023. Rising travel and employee expenses, alongside higher attrition rates, further strain dollar margins.

Regarding the US Federal Reserve, Ramkumar believes they will moderate their approach after aggressive 75 basis point hikes, potentially shifting to 50 basis point increases. However, the possibility of a deeper market correction remains significant given India's high inflation despite rate hikes to 5.9%, resulting in negative real yields for over a year.

While India's macro indicators appear stronger than during previous economic challenges in 1997 and 2013, the true test will be how the rupee performs through 2022-2023. Having already depreciated 10.7% in 2022, currency stability will be a key indicator of economic resilience moving forward.

For investors, these conditions suggest a cautious ""buy on deep dips"" approach rather than aggressive market participation.