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How to play defensive in 2023

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There are profits to be made if you play right. Most analysts’ annual investment predictions in 2023 are out. They talk of a 65000 level for the Sensex and 20000 for the Nifty. The two benchmarks are expected to gain 10-15% in value in the year ahead. However, these predictions hide the underlying tension due to macroeconomic headwinds the global markets face in 2023. The latest minutes of the US Federal Reserve’s Open Market Committee determining borrowing rates revealed that most participants are hawkish about their policy stance. That means interest rates would stay higher till the US consumer inflation does not get to a level of 2% and sustains it.

That is no good news for equity markets. American companies have had a record run in profit growth over the past few years. However, there are warnings of a recession in 2023 from the International Monetary Fund, World Bank and a few giant American global banks like JP Morgan. When America sneezes, the world catches the flu. That is true of money flowing in equity assets around the world. The strengthening US dollar and slowing economic growth would push large institutional investors to take a ‘risk-off’ strategy. That would mean large sums of institutional investor money would stay in cash or fixed income. The slowdown in America will hurt Europe and export-dependent economies in South East Asia. China has its problems with the pandemic. The war in Europe continues to hurt global commodities exports and cause supply chain disruptions.

The Indian economy is expected to be an oasis amidst all the chaos around the world. It could just be a defensive play for global investors and you. It will likely be the fastest-growing large economy for the next few years. At the same time, corporate profits are likely to grow steadily. The government expenditure on infrastructure is expected to trigger a chain of economic activity as direct and indirect tax revenue stays robust.

The only thing that could stall the India march is the valuation. Share prices are at a record high at the moment. Some companies are trading at a historical or expected price-earnings multiple of over 50-60 times their profit. Institutional investors tend to stay out and prefer equities trading at a lower PE. Chinese stocks are trading at half the valuation of Indian equities. Considering the pulls and pressures, not many analysts predict any runaway rally in share prices.

What you could do

You need to choose businesses that produce consistent profit growth. As a thumb rule, companies dependent on Indian economic growth tend to grow at twice the rate of the GDP. Volatility in the market could rise as many institutional and retail players who invested long ago could cash out at the peak of the valuation cycle. You need to identify your stocks with precision. Those companies are likely to grow profits steadily and are trading at a reasonable price. The other option is to look for businesses that pay the highest dividends. It is easier said than done. Do check out the alphamind stock portfolios by visiting


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