2022 belonged to Indian equities as the local market outperformed most global and emerging markets by a notable margin despite multiple headwinds such as the Russia-Ukraine geopolitical crisis, policy tightening, rising inflation, and volatile FII funds flow.
India's benchmark index posted a ended the year with a growth of 4.3 percent, while the S&P 500 and Emerging Market indices tanked by 19 percent and 20 percent.
“It was a year of time and price consolidation as large FII selling was countered by strong DII investments, amply supported by robust SIP inflows into mutual funds,” Gopal Kavalireddi, Head of Research at FYERS, told Moneycontrol.
Foreign institutions pulled out nearly Rs 2.78 lakh crore during the calendar year from Indian equity markets. Domestic institutions countered the exodus by picking up equities worth over Rs 2.76 lakh crore.
Retail investors stayed disciplined with their equity allocations, infusing almost Rs 1.5 lakh crore into various mutual fund schemes during the year, pointed out Kavalireddi.
At the end, the BSE equity market capitalisation gained Rs 16.4 lakh crore for the year, despite losing out Rs 6.1 lakh crore in December alone.
A December without the ‘Santa’ cheer
The performance for December was in a stark contrast to the December performance over the last three years as the Nifty50 broke the winning trend for December and declined 3.5 percent during the month.
Volatility in the stock market, induced by geopolitical tensions, rising interest rate cycles, uncertain business demand, and fluctuating currencies, resulted in a muted performance. Yet, no other index ended the year with positive returns.
“December was a volatile month for the market in which broader market recovery was seen during the first half, however, incremental volatility was seen in the second half on account of rising Covid cases in China as well as the rising bond yields in the US market,” said Neeraj Chadawar, Head of Quantitative Equity Research at Axis Securities. In the last two weeks of December, the US bond yields inched up 40 bps.
Nifty Midcap slipped 1.7 percent, while Nifty Smallcap declined 1.8 percent month-on-month. On the sectoral front, PSU Bank and Metal stood indices out with returns of 7.9 percent and 2.4 percent. Nifty Media, Nifty IT and Nifty Energy were the worst-performers with more than 5 percent negative returns.
The 25 stocks that beat the markets
Only 25 stocks from the basket of Nifty100 delivered positive returns in December while 52 stocks underperformed the Nifty50. From the 150 mid-cap stocks, only 35 percent of the companies delivered positive returns.
On the other hand, from the 2,086 small-cap stocks listed on the NSE, only 1,619 stocks actively traded during December and their performance was relatively better, with almost 40 percent of companies delivering positive returns.
FIIs were the net sellers in December and sucked out over Rs 14,000 crore from India, while DIIs continued with their support for Indian equities and infused Rs 24,000 crore. The SIP flows stayed north-bound and reached Rs 13,573 crore at the end of the month.
PMS waded the volatility better
Despite the volatility and bearish sentiments prevailing in the Indian markets in the latter half of the month, there were many portfolio management services (PMS) schemes that generated better returns compared to the Nifty and Sensex.
PMS schemes cater to wealthy investors with sizes exceeding Rs 50 lakh. Their professional fee structure is different from that of regular mutual funds.
Out of 318 schemes tracked by Pmsbazaar.com in December, 214 schemes (67 percent) outsmarted the Nifty, while 97 schemes (31 percent) underperformed the index. Data was not available for seven schemes. A total of 22 schemes (7 percent) generated positive returns, while the returns from other schemes were in the red.
The highest return of 6.38 percent was generated by Hem Securities – India Rising SME Stars which was followed by TCG Advisory Services – TCGAMC Multicap Fund (+4.24 percent), TCG Advisory Services – Rise After Fall (RAF) (+3.84 percent); Green Portfolio – Super 30 (+3.84 percent) and Scient Capital – Aries Mid Yield (+2.27 percent).
Not all of these top schemes disclosed their stock holdings for December. Moneycontrol collated a list of the top five from among those that disclosed their holdings.
This list may give investors an idea about which stocks the fund managers of these schemes bet on. But they should not be considered as ‘buy’ recommendations as every fund manager has his own investment strategy.
Green Portfolio: Super 30
The thematic scheme generated 3.84 percent returns in December by investing in stocks such as Southern Petrochemicals Industries, Titagarh Wagons, Orient Paper and Industries, Frog Cellsat and Godawari Power and Ispat Ltd.
ICICI Pru: Value Strategy
This scheme generated 2.03 percent returns by investing in multi-cap stocks like Bank of Baroda, ICICI Bank, State Bank of India, Bharti Airtel and The Great Eastern Shipping Co.
Aequitas Investment Consultancy: India Opportunities Product
Focussing on small-cap stocks in December, this scheme fetched returns of 1.41 percent. Its top-five holdings were Apar Industries, Gujarat Ambuja Exports, Power Mech Projects, Technocraft Industries India and Jindal Stainless Ltd.
Bonanza: The Edge
This multi-cap scheme invested in stocks like IDFC Ltd, Shipping Corp of India, Reliance Industries, Creative Newtech Ltd and Bharat Wire Ropes Ltd. It generated returns of 0.44 percent during December.
Silverarch: Mid and Small-Cap Equity
The small and midcap-focused scheme managed to yield 0.28 percent returns and its top five picks were Federal Bank Ltd, Ion Exchange India, IDFC First Bank, Ujjivan Finance Financial Services and Schaeffler India Ltd.
The road ahead
All the experts that Moneycontrol spoke to expect the markets to be marred by volatility at least in the first half of CY2023, though the intensity might reduce during the year.
“Factoring in the macroeconomic developments and the direction of inflation, the dollar index, oil and commodity prices, and the China reopening will further drive the market fundamentals in the first half of 2023”, added Chadawar.
As China reopens and demand for commodities rises with improvement in supply chains, investors could see better earnings growth in the latter half of the year.
With the Union Budget 2023 just a few weeks away, the focus would be on the government's spending towards the infrastructure sector. “The economic activity in India continues to persist and forge ahead, aided by government initiatives and reforms across infrastructure, railways, power and manufacturing sectors,” Kavalireddi said.
Experts continue to believe in the long-term growth story of the Indian equity market, which is well-supported by the favourable structure emerging with increasing capex and credit growth.
As current valuations offer a limited scope of further expansion, an increase in corporate earnings will be the primary factor driving the market returns, moving forward.
Hence, Chadawar advises bottom-up stock-picking with a focus on domestic stories would be key to generating satisfactory returns in the next year.
He suggests six themes for 2023 that can generate encouraging returns in 2023 and expects banking and financials will be a major theme to watch out for in 2023 on account of improved economic outlook and accelerated credit growth.
Rural recovery is another blip on the radar as rural demand begins to regain, led by moderation in inflation, softness in commodity prices, better farm income expectations, and higher government spending.
Capital expenditure (especially railway Capex) and Infrastructure spending are likely to be overarching themes, Chadawar said, adding that with the pick-up in the real estate and housing demand, the home improvement theme has bolstered and will continue to be robust in 2023.
Expected rebound in the pharma space on account of product launches and gaining market share and also the high-quality retail play will continue to remain in focus.
Kavalireddi agreed with Chadawar as he too believes that in CY23, investors would be better off, adopting a bottom-up approach to stock selection, rather than focusing on market caps or sectors.
“While growth stocks could take time to stabilise, value stocks could be the ideal play in the short term,” Kavalireddi said.
Investors should focus on identifying companies with better product portfolios, deleveraged balance sheets, strong cash flows and capex plans.
“The large-cap pack seems to be treading into the overbought zone with most expectations around earning expansion being priced in,” Nirav Karkera, Head of Research at Fisdom, said. Limited options in the segment along with the state of valuations and limited probability of surprises on the upside could limit broader interest in the segment.
However, Karkera suggests that the broader segments of midcaps and smallcaps offer strong pockets of opportunities. In light of risks to economic cycle and externalities, midcaps seem to offer a stronger risk-reward payoff proposition versus smallcaps.
The road ahead may be bumpy, but the mantra of focused and disciplined investing will smoothen the ride.
Disclaimer: The views and investment tips of investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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