Global markets plunged into doldrums and struggled to recoup losses for most part of the year amid persistent inflation pressures, monetary policy tightening, slowdown in growth, fear of recession — all of it owing to the geopolitical crisis caused by the war.
Even though stock markets in India fell prey to such an uncertain global environment, both sensex and Nifty still emerged to be the best performing indices amongst its global peers.
In a year that saw see-saw trades in the markets amid extreme volatility, the BSE sensex managed to shine as the best-performing major index in the world, with 4.4% rise (year-to-date).
The credit for this relative outperformance goes largely to the domestic retail and institutional investors, who kept faith in domestic markets despite the steady drumbeat of negative headlines and absorbed the record selloff by foreign funds.
On the last trading day of 2022, benchmark BSE sensex and NSE Nifty pared all intra-day gains to end on a bearish note due to fag-end selling. While, sensex fell 293 points to end at 60,840.74, NSE Nifty declined 85.70 points or 0.47% to end at 18,105.30.
Indian markets outshine
The benchmark BSE sensex ended the year 2022 on a strong note despite volatility. For the 7th straight year, the index ended on a positive note.
The 30-share BSE index surged 2,587 points or 4.4% in this year. The gain might seem minimum in comparison to a whopping 22% jump in 2021. However, when seen in relation to global equity indices, sensex emerges as the winner.
In fact, none of the major global indices have managed to muster gains in this brutal year, including the Dow Jones (down 9.24% in 2022 so far), FTSE 100 (dipped 0.43%), Nikkei (shed 10.47%), Hang Seng (lost 15.82%) and the Shanghai Composite Index (dropped 16.15%).
Similarly, the broader NSE Nifty gained 751 points or 4.32% this year.
How the year unfolded
During the initial days of the war in February, markets had come severely under pressure for good 15 sessions, leading to loss of over Rs 15 lakh crore for the BSE investors.
With the war creating a rage in Ukraine, oil prices soared to record levels amid repeated sanctions by the United States and allies, the European Union and the United Kingdom.
India being the third-largest importer of crude oil, feared rising prices will push up its trade and current account deficit, while hurting the rupee and fueling imported inflation. All this made investors jittery and they continued to lay off stocks.
As Russia invaded Ukraine on February 24, sensex witnessed one of its worst crashes in the last 2 years. Ever since the pandemic-induced crash in March 2020, investors gained significantly leading to more people joining the markets looking to earn higher returns. However, despite gains there were certain worst days for the markets as well.
The rapid pace of rate hikes by the Reserve Bank of India (RBI) to soothe the persistently rising inflation further added fuel to the fire. The US Federal Reserve was the first major central bank which started raising interest rates after a hiatus of over 2 years owing to the pandemic. RBI and others followed suit.
Not just domestic markets but globally stocks came under pressure as the fast-paced rate hike brought back fears of a recession.
Hit by this global gloom, sensex plunged to year’s low level of 51,360 on June 17. It hit an intra-day low level of 50,921 on the same date.
However, timely policy measures by the government and RBI helped in gradual recovery.
The BSE sensex witnessed an upward trajectory in almost every trading session and scaled back to 60,000-mark in next 40 sessions.
Both the benchmark indices started picking up momentum as the festive season approached. Since October, sensex has traded above the 60,000 level while NSE Nifty remained above the 18,000-mark.
On November 30, sensex surged past the all important level of 63,000 during the session and also closed above it for first time. The next few sessions saw stock markets scaling record highs. On December 1, sensex touched an lifetime high of 63,583 during the day and closed at all-time high of 63,284.
Both sensex and Nifty were finally back at record high levels after over a year. Their last highs were recorded in October 2021, where the markets scaled best ever peaks. After October, stock markets witnessed sharp corrections and even though there were brief periods when sensex scaled back past 60,000-mark but it never held on to the momentum.
However, the resurgence of Covid cases in China and related restrictions being imposed by almost every country to stop the cases from spreading yet again has made investors somewhat jittery in the last few sessions.
What led to the gains
India is poised to be the fastest growing among major economies globally, both IMF and the World Bank reiterated this in their recent reports. Although both have cautioned that the pace of growth may slowdown a little in next year owing to global headwinds like inflation, rate hike and a possible recession.
Even amidst external turmoil, India’s macroeconomic conditions remain stable, which is a positive point for investors.
In addition, rising GST collections, capital expenditure and credit demand, and easing inflation are also some of the factors that point to steady growth.
Market players also said that the growing SIP contributions and buying by domestic institutional investors amid a nearly Rs 1.3-lakh-crore selloff by foreign funds in the year has boosted Indian stocks.
Besides, a strong performance from corporate sector also played a key role in boosting investor sentiments.
To top it all, China’s loss has been India’s gain. The world’s second biggest economy had a crackdown on its technology companies, while its Covid-zero policy has slowed down its economy. In such a scenario, trade tensions and production halt led to a shift towards India.
Further, mutual fund investments through the systematic investment plans or the SIP route too have been on a rising trend despite market fluctuations, touching a record high of Rs 13,306 crore in November (both equity and debt segments).
This pushed the Assets Under Management (AUM) of the 43-player MF industry to a lifetime peak of Rs 40.49 lakh crore at the end of November.
Sectors with most gains
In its latest India Index dashboard released for the month of October, BSE Power and Utilities were the major gainers. While power stocks gained 48.95% from October 2021, Utilities were up over 38% in a year.
Capital goods, industrials, auto, FMCG and oil & gas were the other sectors that experienced good gains.
However, it was PSU Banks that rallied the most this year with 64% gains. It was followed by FMCG, private banks and metals.
On the flip side, realty and IT stocks were the biggest market drainers this year.
In addition, stocks of Adani Group firms have also been biggest market movers this year owing to million dollar deals bagged by the group.
Investors gain over Rs 16 lakh crore
Domestic investors became richer by more than Rs 16.38 lakh crore in 2022 even amid unstable external environment.
In the beginning of the year, market capitalisation of BSE-listed firms stood at Rs 266 lakh crore. Today, the valuation has zoomed to Rs 282.38 lakh crore.
However, the wealth gained in 2022 is significantly lower than the Rs 78 lakh crore wealth investors had made during 2021.
At the close of trading on Friday, Reliance Industries Ltd was the country’s most valued firm with a market valuation of Rs 17,23,979.45 crore, followed by Tata Consultancy Services (Rs 11,92,576.32 crore), HDFC Bank (Rs 9,07,505.41 crore), Infosys (Rs 6,34,873.16 crore) and ICICI Bank (Rs 6,21,588.34 crore) in the top five.
Domestic investors turn saviours
The credit for this relative outperformance goes largely to the domestic retail and institutional investors, who kept the faith despite the steady drumbeat of negative headlines and absorbed the record selloff by foreign funds.
If we compare this to the panic of the global financial crisis of 2008, the sensex had collapsed by over 50% as FIIs pressed the exit button.
Foreign Institutional Investors (FIIs) have pulled out a record Rs 1.21 lakh crore from Indian equities in 2022 so far, in lockstep with rate hikes by the US Fed which have triggered an exodus from emerging markets, including India.
In contrast, domestic investors displayed the sharp instincts of market veterans and ‘bought the dip’ with a vengeance.
The share of retail investors’ shareholding in NSE-listed firms reached an all-time high of 7.42 per cent (around Rs 19 lakh crore) as on March 31, 2022.
How the IPO market panned out
India recorded its largest IPO with the $2.7 billion issue of Life Insurance Corp of India, making it the fifth-largest valued firm though its shares have shed about 20% since it went public in May.
The IPO came after the government offloaded its decades-old, debt-laden flag carrier Air India to Tata Sons for $2.4 billion in enterprise value.
The bull rally last year led to emergence of various tech-driven, consumer companies on the public market through IPO route.
Food delivery app Zomato was the first major one to show the path, which was quickly followed by online cosmetic retailer Nykaa, tech-enabled financial products retailer Policybazaar and digital payments solutions provider Paytm. While Zomato and Nykaa had blockbuster D-Street debuts, Policybazaar struggled and Paytm left many investors poorer.
However, at present the craze for these IPOs seem to be fizzled out. All stocks mentioned above are trading way below their debut price.
According to an EY report, tightening of liquidity, uncertainty caused by global headwinds and sharp correction in some recently listed companies has dampened the sentiment for IPOs.
Rupee v/s US dollar
Contrary to markets, the Indian currency turned out to be worst performing among all its Asian peers. The rupee ended the year on a negative note, with a loss of 844 paise or 11.36%, primarily led by a strong dollar against its major crosses overseas.
The rupee finished the year at 82.72 to the US currency, down from 74.33 at the end of 2021, while the dollar index was headed for its biggest yearly gain since 2015. This is rupee’s biggest decline since 2013.
The greenback climbed in the overseas market as the US Federal Reserve raised rates aggressively following surging inflation.
The rupee was also a victim of a rally in oil prices sparked by the Russia-Ukraine conflict, which pushed India’s current account deficit to a record high in the September quarter in absolute terms.
According to a Reuters report, market participants believe that heading into 2023, the rupee would trade with an appreciation bias, finding relief from easing commodity prices and hopeful of foreign investors continuing to buy Indian equities.
The world-beating stocks performance has helped India to double its weight in MSCI’s emerging markets index to 16% from 2019, but overseas investors have missed out in the local rally.
While Asia M&A deals fell to 8-year lows, India stood out with total deal value jumping 33% on the year to $164 billion, mainly boosted by the $40 billion purchase by the country’s largest private lender, HDFC Bank (HDBK.NS), of its parent.
What lies ahead
As we step into 2023, global factors, like recessionary fears, geo-political risks and rising covid cases in China could keep the equity markets volatile.
US Fed policy actions in 2023 along with RBI’s would hold importance where any moderation might encourage markets to pick up momentum.
Next year’s optimism for India is driven by strong corporate earnings, a post-pandemic retail boom and an economy set to grow by 6% in the next fiscal year – which will make it the world’s fastest-growing major economy in 2023.
Though some analysts point to high domestic valuations, strategists polled by Reuters last month forecast India’s stock market will rise another 9% by the end of 2023 despite widespread expectations of a gradual slowdown in the economy. GDP is projected to grow 6.8% to 7% in the current fiscal year.
According to a report in Reuters, benchmark indices are estimated to rise another 9% by the end of 2023 despite widespread expectations of a gradual slowdown in the economy.
In its latest report titled “Staying put as others catch up”, Goldman Sachs wrote “market valuations are expensive in absolute terms, relative to its own history and bonds”, adding that the Indian stock market was at a record premium against the rest of the region.
The brokerage firm projected that sensex is expected to touch 80,000-mark by December 2023 if India gets included in global bond indices. In addition, sharp correction in oil and fertiliser prices, earnings growth compounding at the rate of 25% annually over FY2022-25 are also key factors.
Asia’s third-largest economy is widely expected to slow significantly in coming months.
Morgan Stanley says it is bullish on equities but reckons Indian markets, which have been driven higher mainly by domestic buying, will underperform peers in 2023.
“The seemingly easy call for 2023 is that emerging markets are likely to benefit from a relatively more benign world versus 2022, and given India’s trailing outperformance and rich relative valuations, Indian equities will likely see a retracement of relative gains,” Morgan Stanley analysts wrote in its latest client note.