Despite global economic headwinds, the Indian equity market has extended its winning streak, largely supported by the banking, auto, FMCG and metal sectors, as well as a solid comeback by foreign portfolio investors (FPIs). The market also benefited from falling crude oil prices, a decline in inflation, and a slowdown in the Chinese economy.
2022 in Review: Indian market outperformed global peers; Nifty PSU Bank best-performing index
FPIs made a strong comeback, investing a total of ₹4,500 crore in Indian equities during December 1–9, according to depositories' data. In November, they infused nearly ₹36,329 crore, on expectations that the US Fed may be less aggressive on rate hikes soon.
Prior to this, foreign investors pulled out ₹8 crore in October and ₹7,624 crore in September. FPIs were sellers in October initially, but the sell-off had slowed drastically on the back of some improvement in sentiment in the global markets.
On the other hand, India's retail inflation cooled down to 5.88 percent in November from 6.77 percent in the prior month, falling below the RBI's upper tolerance level for the first time this year.
Besides this, the Chinese economy's slowdown as a result of its "zero-Covid" policy has forced the closure of many manufacturing plants. As the lockdown continued, some of the major manufacturing plants shifted to India, giving the country's manufacturing sector a significant boost.
India seems to be enjoying the TINA (There Is No Alternative) factor, as globally most countries are troubled. India seems to be the best-placed jurisdiction in terms of growth and inflation outlook in FY23, SBI said in its Ecowrap report.
On December 01, the S&P BSE Sensex index rose 0.29 percent to hit a record high of 63,583. Similarly, the broader NSE Nifty marked a new all-time high of 18,887.
Following a nearly 5.78 percent rally in October, the Sensex has increased by 3.87 percent in November, while the Nifty50 has generated a return of 4.14 percent in the preceding month following a 5.37 percent rally in the month of October.
YTD, the Nifty50 and Sensex have risen 6.58 percent and 6.65 percent, respectively. The rally in domestic indices so far this year has amply proven that it is far ahead of its global counterparts.
US major indices, the Dow Jones Industrial Average and the S&P 500, have declined by 8.18 percent and 17.91 percent, respectively, so far this year, while the tech-heavy Nasdaq slumped 30.52 percent during the same time period.
The European major indices, the Dax, the CAC40, and the FTSE 100, have declined 10.72 percent, 7.90 percent, and 0.74 percent, respectively.
Adding to that, major Asian indices fell. The Nikkei 225 dropped 4.98 percent, the Topix also dipped 3.59 percent, South Korea's Kospi lost 20.60 percent, and the Kosdaq shed 31.09 percent in 2022 so far. China’s Shanghai Composite Index dipped 12.48 percent, while Hong Kong’s Hang Seng index fell 16.73 percent.
Nifty PSU Bank index stands as the best-performing index
Stocks from the banking, auto, FMCG, and metals sectors provided significant support for the indices to hit record highs. Over the last two quarters, most banks have reported improved performance as a result of the acceleration in credit growth.
The central bank has raised interest rates by 225 basis points (bps), pushing the repo rate to 6.25 percent this year.
Following the RBI's rapid rate hikes, banks raised lending rates quickly but went slow on deposit rates, resulting in higher net interest margins in the second quarter. In addition, lower provisions have also contributed to the bank's profitability, propelling stock prices to new highs.
Since the beginning of the year, the Nifty PSU Bank index has risen approximately 1,828 points, moving from 2,530 to 4,358, gaining nearly 72.52 percent of its value.
With gains of over 102.92 percent in 2022, Punjab & Sind Bank leads the Nifty PSU Bank index, with Union Bank of India, Bank of India, UCO Bank, and Bank of India following closely from 90 percent to 101 percent gains.
In addition, metal stocks also contributed a significant boost, fueled by easing Covid restrictions in China, the largest buyer of metals, the rollback of steel export duties, and the decline in coking coal prices.
Over the past month, the Nifty Metal index has increased by nearly 4.05 percent; YTD, the index has risen by 21.49 percent.
ICICI Direct Research said that the removal of export duties augurs well for domestic steel players, albeit over a longer-term horizon.
The Nifty Auto index and Nifty FMCG index have also rallied 17.72 percent and 23 percent, respectively, in the current year so far.
Is Indian market overvalued?
Last month, global brokerage house Goldman Sachs, in its outlook for India, said that it sees the benchmark Nifty50 hitting 20,500 by December 2023. The brokerage also noted that India is unlikely to outperform its peers in 2023 due to expensive valuations.
The Indian market has been a strong outperformer thanks to "stronger domestic fundamentals," but valuations have turned expensive compared to global peers, it pointed out. India has outperformed China for two years in a row and could underperform going forward, it added.
The brokerage stated that amid a challenging global macro environment, Indian equities have significantly outperformed the MSCI Asia ex-Japan region by 18 percent year-to-date and more than 40 percent in USD terms since last year, due to stronger domestic fundamentals.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
personal financeAbeer Ray