By Sanjeev Sharma New Delhi, Jan 3 : Even after the GDP bounce-back off the low Covid-19 base, India can manage a 7.7 per cent expansion in FY23 and hence deliver growth that is almost unrivalled globally, UBS said in a report. Yet, after a stellar two years for the Nifty where it even left the S&P behind at times (even in US Dollar terms), we believe the valuation does not fully reflect upcoming headwinds, the report said. These include rising interest rates both globally and in India, and importantly, the return of India's historic soft spot, current account deficits. "These headwinds may affect not only the country's stock market but also the INR. We hence believe a multi-month pause is in order, the recent correction notwithstanding," the report said. "All told, within the space of two years, the current account is likely to swing from its surplus of 0.9 per cent of GDP towards a 1.9 per cent deficit, in our view. We believe this will bring down the INR. We look for USDINR to trade towards 79 levels by end-2022," UBS said. Another interesting and potentially bearish aspect is the lopsidedness of recent inflows that have kept the market afloat. They are now derived almost exclusively from domestic retail investors. However, the past has shown that this type of flows can stop when markets no longer exhibit a steady rise, and potentially higher bank deposit rates could become a potent competitor again when the RBI starts to hike interest rates, UBS said. India's stock market left most emerging markets and even developed markets counterparts in the dust during 2020 and especially 2021. That said, and the structural appeal of the Indian market notwithstanding, we believe in the near term the Nifty is due for a pause, and may even ease in the early part of 2022, UBS said. "A key reason is indeed the still lofty valuation premium. We expect this process to continue. The earnings growth of 28.3 per cent for FY22 and 11.7 per cent for FY23 works as a partial counter-force and will likely help to prevent a strong correction. At the same time, we stress that as is often the case, consensus estimates look implausibly high to us", UBS said. Still, financials should come to the fore on the back of rising loan growth, coupled with expanding interest margins. We also like cyclical names in the vehicle, cement and construction space. We believe materials stocks on multi-year high valuations will likely underperform as some supply tightness eases, the report said. In our estimate, the central bank will likely start to slightly tighten policy measures from March and subsequently raise its repo rate around September, followed by a second rate hike later during the year to arrive at 4.5 per cent, the report said. During the early part of the pandemic, exports held up reasonably well while imports plummeted. Yet, for FY23, we expect only small export growth while imports should come roaring back as the economy reopens further and oil prices are rising. (Sanjeev Sharma can be reached at Sanjeev.s@ians.in) /IANS