Soaring inflation, aggressive hikes in key lending rates, the risk of a recession in the US and Europe and geopolitical concerns kept the markets subdued in 2022.
The year is ending with small gains for the equity benchmarks and the outlook for the coming year is also not very bright, with many analysts expecting the persisting concerns to stretch into a significant part of 2023.
Sensex and Nifty are up about 5 percent each in 2022 as of December 21 close, while the BSE Midcap index is up just 2 percent. The BSE Smallcap index is down 2 percent for the period.
Still, the Indian market is set to end the year outperforming its major global peers, thanks to its bright economic growth prospects.
The calendar year 2022 (CY22) was difficult for the market but it also taught key lessons on betting on quality stocks and keeping return expectations rational.
MintGenie talked to five analysts to understand how good or bad was 2022 for the market and what were their key learnings. Here's what they said:
Analyst: Mitul Shah, Head of Research at Reliance Securities
CY22 is coming to a close and the year has somewhat weighed negatively on the market sentiments. Inflation has been the major highlight during the year, especially with the escalated commodity and food prices post Russia-Ukraine war.
Major central banks globally continued with the monetary policy tightening and this is expected to continue going ahead. Stock markets have been volatile all throughout the year and are expected to remain the same in the near term.
Only the Indian market delivered a positive return, followed by Brazil (up 2 percent), while all other markets recorded negative returns in 2022.
Indian equities outperformed global indices in 2022 with a nearly 5 percent gain, while all major indices posted a negative return. Nasdaq was a major laggard (down 33 percent), followed by S&P 500 (down 20 percent) while Heng Seng lost 18 percent in 2022 so far.
Key learnings: Key learning this year is that India is still not decoupled completely as, despite good domestic parameters, global issues impacted equity market performance with a return below the risk-free rate in 2022.
However, India is better positioned in terms of handling Covid as well as inflation issues, it has strongly outperformed global equity markets.
Analyst: Deepak Jasani, Head of Retail Research, HDFC Securities
2022 was a year that gave single-digit returns (Nifty) but saw sufficient volatility mainly driven by the impact of central bank decisions and Russia-Ukraine conflict.
Building on the large gains of 2021 was anyway difficult in the background of these developments. Looking forward, the path ahead seems uncertain, especially as the probable downsides due to high-interest rates and slow growth can be largely offset by a huge amount of funds floating around seeking returns and wanting to buy the dip.
This dilemma will be broken only if the risk appetite shrinks due to a series of unanticipated events or growth picks pace earlier than expected.
Key learnings: (1) The sheer availability of money across the globe meant that past correlations among asset classes did not work in such times.
(2) One should never try to fight central banks which can influence the availability of money and the risk-taking abilities of market participants.
(3) Interest rates and inflation can take a long time to correct from high levels.
(4) Revenue and its growth are important from a valuation perspective, but that has to translate into cash and net profits in the foreseeable future.
(5) Fund flows from foreigners can be vacillating and go from one extreme to another in a short period of time.
(6) It may be easy to increase the size of the central bank balance sheets, but very difficult to scale it back.
(7) Globalisation seems to be under serious threat and localisation could be the next thing. However, financial markets globally remain interlinked due to the easy movement of flows.
(8) The US dollar continues to be the currency of choice across the globe.
(9) Gold failed to rise in uncertain times and could gradually lose the safe haven status, though it remains the next best to USD. However, the fear of dollar reserves being frozen by the US could lead other economies to look for alternatives.
(10) Bubbles keep forming every few decades with cryptos being the latest. Even well-educated people fell into the trap and regulators missed tightening regulations in time.
Analyst: Sneha Poddar, Assistant Vice President, Research Analyst, Motilal Oswal Financial Services
India sharply outperformed global markets in 2022 as it stood resilient despite several global headwinds. Strong domestic macros and robust corporate earnings delivery have put India in a sweet spot.
The market uptrend may continue, though bouts of volatility cannot be ruled out.
Key learnings: Despite intermittent volatility and several concerns, if one remains invested with patience in quality names for a long tenure, the market does reward investors.
Identify the right theme and sit tight on quality names, avoiding the noises in between in order to reap benefits.
Analyst: Ashish Chaturmohta, Head of Advisory Research, JM Financial Services
The two major market catalysts that have weighed on stocks throughout 2022 are inflation and interest rates.
The analyst believes global macros (inflation and growth dynamics) remain uncertain; inflation has peaked but is expected to remain sticky. This would likely keep Fed hawkish prioritising inflation flight over growth slowdown.
As per various street reports, over 80 percent of the rate hikes by the US Fed are now in the bag. India's policy rate is also 25-50bps from the peak. The focus now is likely to shift to the rate of decline in inflation and how long-term expectations shape up.
Key learnings: (1) Always expect the unexpected (for example the Russia-Ukraine war).
(2) Value and dividends can outpace growth and momentum in a rising interest rate environment.
(3) The bottom line is more important than top-line growth visibility.
(4) A change in the macro environment can re-rate the entire sector, faster than expected (for example defense, railways, etc.).
Analyst: Apurva Sheth, Head of Market Perspectives & Research, Samco Securities
The year 2022 was a mixed bag. The first half went to the bears. Nifty dropped almost 12.5 percent from 17,354 on December 31, 2021, to a low of 15,183 in June 2022. The index bounced back more than 20 percent from the June lows to all-time highs of 18,887 in December 2022.
The year 2022 has reminded us to never extrapolate the recent past into the future. A lot of times people see the recent gains of a stock or sector and jump on to the bandwagon thinking that it will continue to give gains in future too.
BSE IT is a perfect example. The index almost tripled in two years from a level of 13,712 in 2019 to 37,844 in 2021. Just when people started believing that IT stocks were going to the moon, they crashed.
2022 was the worst year for IT stocks since 2008. No one is willing to touch them now despite them offering good value.
A year ago, PSU banks were in the same place where IT stocks are right now. No one was willing to touch them even with a 10-foot pole. But they have surprised everyone with a year-to-date gain of almost 70 percent.
Key learnings: (1) Nothing goes up forever. Momentum works in the markets but you must know when to get out.
(2) Every stock has value. Even a clock that isn't working will show the right time at least twice a day.
(3) The best investment opportunities are those when a stock falls way below its intrinsic value. If you get in at the right time, you can make good money quickly.
(4) Market is cyclical in nature. In markets, everything works sometimes but nothing works always.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.