Chennai: Investors can follow the strategy of being safe in 2023 with the global macroeconomic backdrop likely to be challenging with the risk of a slowdown, Standard Chartered said in a report.
According to Standard Chartered, the lagged effects of monetary policy tightening lead to a weaker demand scenario and lower corporate earnings performance.
“However, as the monetary policy rate cycle peaks amid receding inflationary pressures in the second half of the year, risk sentiment could improve with the growth outlook stabilizing,” the report notes.
“In our assessment, India’s growth-inflation dynamics are stable and better than its peers. The post-pandemic economic recovery cycle remains strong amid supportive government policies and a pick-up in investments,” it added.
Further, the likely broadening of the recovery to the rural economy and service sectors is a strong tailwind. Inflation is likely to trend lower on easing food and commodity prices, fading pent-up demand pressures and lagged impact of monetary policy tightening.
Standard Chartered expects the Reserve Bank of India (RBI) to hike policy rates by another 25-50 basis points (bps) in H1 2023 with further policy actions contingent on external developments.
Given this situation, it is better to adopt the SAFE strategy an acronym for Securing the yield, Allocating for long-term value, Fortifying against further surprises and Expanding beyond traditional.
According to Standard Chartered bank, investing in bonds — government/high quality/short maturity and large cap equities would secure the yield.
For long-term value creation, investors can allocate towards financials, domestic cyclical and investment-led themes and to fortify against surprises the avenue is adding defensive portfolio allocation adding cash, and gold.
As regards expanding beyond traditional, Standard Chartered suggests having a core holding in alternative strategies.
The risks investors may get exposed to are: a downturn in global growth and its negative implications on India’s economic growth and external balance; a persistent rise in inflation could turn macro conditions unfavourable for risk assets; an over-tightening policy error by central banks could drive volatility significantly higher for risk assets with another leg up in bond yields and geo-political tensions are likely to stay elevated in 2023, driving intermittent bouts of volatility.
–IANS
