Nifty’s two-decade-old habit shows double-digit return possible in 2023. Which stocks to buy?

“In the past, it has been observed that the Nifty rallies 20%, on average, after breaching its all-time high. Barring Nov 2010, all breaches have generated positive returns over the next 12 months,” said Amar Ambani, Head of Institutional Equities at YES Securities.

The move, he said, is preceded by at least nine months of consolidation and a likely Déjà vu could be on the anvil for investors in 2023.

Market data shows that 5 out of 7 such breakouts occurred in November or December.

During such breakouts, the stock market tends to be sector agnostic, however, midcaps and smallcaps tend to do much better than the Nifty.

FMCG is one sector which has given double-digit returns going up to 28% in all the previous four instances of breakout. Stocks of banks, financial services, IT, MNC, metal and realty stocks have also outperformed Nifty in 3 out of 4 times.

A poll of 21 analysts from top brokerages by ETMarkets shows that two-third of them expect banks to outperform Nifty in 2023. Only about 15% are willing to make a contra bet on IT, which is the worst sectoral performer of 2023.

Against the backdrop of a resilient domestic economy and troublesome global macro, brokerages are betting on domestic sectors over exporters. “We are overweight on banks, consumer staples, infra/construction and telecom. We are underweight on consumer discretionary, capital goods, metals, and IT services,” Nomura said.

Jefferies likes large banks, auto, staples, property and select capital goods plays. Morgan Stanley, on the hand, has adopted a barbell portfolio strategy with overweight stance on financials, tech, consumer discretionary and industrials and underweight all other sectors.

Analysts are, however, worried that India’s valuation, which is not cheap anymore, may limit the upside potential for investors in 2023.

“Unlike most markets, Nifty 50 is trading at higher valuation multiples than pre-COVID levels. The valuation premium to EM is at 70% vs the historical average of ~40%. We think the market valuations reflect expectations of a strong earnings momentum and relatively stable macro,” said Nomura analysts Saion Mukherjee and Neelotpal Sahu.

Nifty is poised to end 2022 on a strong note as one of the world’s best performing indices across developed and emerging markets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)