`Five sectors may see margin expansion in 2023'

CHENNAI: Companies in cement, automobile, consumers and specialty chemicals might see margin expansion in 2023, said Motilal Oswal Asset Management Company (MOAMC).

While inflation does seem to have peaked in 2022, central bankers are not letting their guard down.

While the increase in policy rates has slowed down, central bankers are now expected to keep rates high for longer and the peak rate could be a tad higher, vs earlier expectations, MOAMC said in a report.

According to the report, the equity markets which had been buoyant in November 2022, on hopes of a policy pivot, gave away some of their gains and consolidated. Covid fears resurfaced on spike in China.

"Cement, consumers, specialty chemicals, and autos might see margin expansion in 2023," said MOAMC.

The Indian cement industry could add 80-100 million tonnes of capacity by FY25, driven by increased spending on housing and infrastructure.

Citing the long term growth potential of India, MOAMC said Indian cement companies are favorably positioned to deliver building solutions for the nation on the march. The three main demand drivers for the cement industry: infrastructure upgrades, rural housing, and urbanisation.

As regards to the consumers segment, the E-commerce continued to grow with more people shopping online; consumers continued to prefer products that enhanced their health and well-being.

Traditionally, low-cost labour and readily available raw material provided an edge to Indian specialty chemical manufacturing companies.

Not being content with this advantage, the companies are now focusing on product development capabilities.

The Indian chemicals industry has increased its capital expenditure over the past decade in order to be well-equipped to capture future opportunities.

The automobiles sector will be driven by rural demand for those players with strong rural and semi-urban presence. Demand in urban regions continues to remain buoyant. Improvement in sales is to continue, driven by an expected rise in e-commerce, agriculture, infrastructure, and mining activities. Many Auto companies expect recovery to continue over the next few years, driven by improved economic activities, an affordable interest rate regime, and better financing availability, said MOAMC.

Amongst other spaces, tyre companies and auto ancillaries could see margin expansion.

During Q2FY23, banks dominated profit delivery. Now with deposit growth picking up, and with system liquidity improving, a higher growth rate can sustain for longer aided by a money multiplier. Most banks are comfortable with provisions and hence the non-performinng assets (NPA) are expected to not hurt. Government banks could see a sharper increase in net interest margin (NIM).