Indian equity market is likely to be "choppy" in 2023 and the returns might be moderate or even negative as a raft of factors, including geopolitical uncertainties, recession fears and interest rate trajectory, will weigh on investor sentiments.
Global and domestic factors to influence market
Market experts opined that the Indian market will be influenced by a combination of domestic and global factors, including the coronavirus situation and policy initiatives in the Union Budget next year.
Despite strong global headwinds roiling financial markets worldwide this year, the domestic equity market stood strong as a stellar performance of bluechips saw the 30-share Sensex soaring nearly 13,000 points to its all-time high of 63,583.07 on December 1, in less than six months after touching its 52-week low of 50,921.22 points on June 17.
The strong showing this year came even as Foreign Portfolio Investors (FPIs) dumped Indian equities and concerns over high inflation persisted.
Global factors like recession fears, geopolitical risks and rising coronavirus cases in China could keep equity markets volatile.
US Fed and RBI's policy changes
The US Fed policy actions in 2023 along with RBI's would hold importance where any moderation might encourage markets to pick up momentum, Siddharth Khemka, Head - Retail Research at Motilal Oswal Financial Services Ltd, said.
Elections in 2024
"Also, next year is the last year before elections due in 2024 which could result in many policy-led initiative announcements in the upcoming Union Budget in February," he added.
Mayank Mehraa, smallcase manager and Principal Partner at financial consultancy Craving Alpha, said the government's economic policies and reforms, performance of major economies and foreign capital inflows will also influence the domestic equities.
Sensex has climbed 2,656.46 points or 4.56 per cent till December 28 this year.
Negative returns in 2023
Suman Bannerjee, CIO of US-based hedge fund Hedonova, said, "we'll see negative returns in 2023", adding that the Indian market is very overvalued compared to global counterparts.
"Once the US Fed pivots and starts reducing rates, we'll see bear markets in the USA spillover to India," he noted.
Movement of Rupee and US dollar
Trends in the equity market next year will also continue to be guided by movement of rupee and the US dollar as well as international oil benchmark Brent crude.
Slow growth and rising interest rates
Markets are likely to remain choppy in 2023 too, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, adding that global growth is slowing down and interest rates are rising.
"This is not a favourable environment for equity, at least in H1 of 2023. Expect only moderate returns from equity in 2023," he said.
Market analysts said 2022 was a volatile and turbulent year for global equities, marred by varied global headwinds, including Russia-Ukraine war, high inflation, fears of global economic slowdown and re-emergence of coronavirus.
"In this backdrop, Indian equities have delivered a stellar and sharp outperformance for the year with the Nifty-50 and Sensex clocking all-time highs during early part of December," Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas, said.
"The multiple macro-economic headwinds of the 2022 global economic slowdown, rising inflation, liquidity tightening, geopolitical tensions and re-emergence of COVID-19 scare will continue to weigh on global equity markets," Hota said in a report on market outlook 2023.
According to him, there will also be ample attractive opportunities for long-term investments.
This year, aggressive rate hikes by central banks globally to tackle inflation, rising commodity prices and the Russia-Ukraine conflict led to an exodus of foreign money.
Till December 28, Foreign Portfolio Investors (FPIs) made a net withdrawal of Rs 1.21 lakh crore (nearly USD 16.5 billion) from the Indian equity market and pulled out a net amount of around Rs 16,600 crore (USD 2 billion) from the debt market, as per data available with the depositories.
Retail/DIIs (Domestic Institutional Investors) absorbed all the selling by FPIs and supported the market, Vijayakumar said.
"India so far stood out like an oasis in the desert, where the rest of the world is facing multiple challenges. The resilience has been led by strong corporate earnings growth which is expected to continue its momentum going ahead as well," Khemka said.
He noted that the driving force behind India's outperformance has been the pick up in capex by the central government which revived the Indian economy from Covid-led slump and strong consumption demand which reflected in the buoyant domestic macro data points.
In a note, Religare Broking said 2022 was the year of returning to normalcy, be it economy at large or life in general.
"What was not normal was supply bottlenecks caused due to geopolitical issues. Though rising interest rates was not the only solution to ease this supply side inflation, it had to be done. India managed its economy well and it is the only economy which has returned to pre-pandemic growth rate. Accordingly stock markets outperformed," it said.
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