Indian markets on track to outsmart global peers in Samvat 2079

Although these were the first negative returns since 2016, the MSCI Emerging Markets index dropped 31 percent while the MSCI ACWI index lost 25 percent during the same period.

For global equities, Samvat 2078 turned out to be a challenging year, given headwinds including rate hikes, the energy crisis, the Russia-Ukraine conflict, continued supply disruptions, outflows from foreign investors and heightened inflation.

End of cycle

Morgan Stanley said recently stocks in the emerging markets and Asia excluding Japan are close to completing their bear market cycles. Nomura Research said Asian equities, including chipmakers, may bottom in the next few weeks after reviewing indicators on the last 12 US recessions and five chip cycles.

“... over the medium-term (>12 months), we see risk-reward quite attractive on Asian stocks. Assuming China does reopen sometime in early 2023 and stocks attempt to anticipate the end of the US recession (NMR: 4Q23), it is likely that a sustained recovery in Asian stocks may occur sometime in the first half of 2023,” Nomura Research said in a report.

Amid inflation concerns and higher input costs in India, there are factors such as healthy GST collections, the highest GDP growth in the Asian region, an above-normal monsoon, and strong earnings, which will keep the Indian economy in a better shape than other emerging economies, analysts said.

“We may be close to a peak in the rate hike cycle,” said Deepak Jasani, head of retail research at HDFC Securities. “The resumption of growth at the global level and particularly on the domestic front is required to shake off the sluggish mood and get back on the path of a sustained uptrend in the markets. Though our trust in the abilities of the central bank and government policymakers to ward off any catastrophe is waning, we must reinstate our trust and hope they can steer the global economy out of such an uncertain environment.”

Among sectoral indices, the Nifty Realty and IT indices were down 22.77 percent and 21 percent, respectively, over the past year. The Nifty FMCG, CPSE and Energy indices were the top performers, gaining 15 percent, 14.81 percent, and 8.6 percent, respectively.

Meanwhile, MCX Gold climbed about 5.6 percent after falling 7 percent during the past year, while the 10-year bond yield jumped 115 basis points, the most in more than 17 years, to 7.51 percent from 6.36 percent last year.

With Indian inflation likely to stay high next year too, analysts suggest investors stay invested in stocks and sectors that give the best returns in volatile markets.

“Firstly, we should focus on stocks and sectors which are less elastic to the problem of high inflation, which is expected to stay high in 2022-23 and affect the profitability of corporations,” said Vinod Nair, head of research at Geojit Financial Services. “Secondly, value buying should be the theme of Samvat 2079 because highly valued stocks will not perform during periods of inflation and high interest rates.”

The best-placed are strong service providers, staples businesses, and companies in a high growth cycle, with a steady source of raw materials (no supply issue), and with low leverage, he said.

Amid a stable economy and a drop in global commodity prices, analysts said investors should look for opportunities in IT, pharma, FMCG, telecom, gas and private banks for the next year.

Broadly, analysts suggest consumption, green initiatives (solar, wind, hydro power, hydrogen, battery), specialty chemicals and manufacturing as investment themes.