The Indian market outperformed most global peers last year. However, it hasn't kicked off 2023 on a good note with the market underperforming most advanced and emerging markets in January.
Also Read: 2022 in Review: With gains of over 4%, Nifty bids farewell to this year — major hits and misses
The market sentiment was impacted by lower-than-expected corporate earnings, Adani fiasco, and comparatively higher valuations compared to emerging economies, particularly China, which is recovering from COVID-19.
"Considering the current state of the economy and global slowdown and till the time better clarity emerges on the government's borrowing calendar, the market will find it challenging to recover from the current levels," said Fisdom Research.
The top two gainers during the period were Hong Kong's Hang Seng and the US Nasdaq -100, each of which increased by 10.4% and 10.6%, respectively.
Fisdom Research said banks, auto, IT, FMCG and capital goods will be among its favourite.
“We view defensive sectors offering goods and services with demand relatively inelastic to price to hold up. Alongside, sectors least disrupted by global trade disruptions, healthy cash flows and limited or managed sensitivity to the overall cost of debt capital to continue holding promise,” it said.
Nifty Next 50 being the worst performer
According to Fisdom Research data, in January 2023, Nifty Next 50 lost 7.1%, followed by Nifty 100 that fell 3.6% during the period.
The market was in a positive mood for the first two weeks of the month, but that changed after Hindenburg's report on the Adani Group impacted the sentiment. According to the research report, the Adani Group allegedly engaged in stock manipulation. Following this, all of the Adani group companies experienced a week-long decline of more than 30–40%.
Adani Group companies, which include Adani Enterprises, Adani Total Gas, Ambuja Cement, Adani Transmission, Adani Green Energy & ACC, and Adani Ports, contribute 2.1% to the large cap indices and have a return attribution of about 1%.
According to the report, the situation for the large-cap index got worse as a result of the sell-off in banks and listed startup companies. Despite the fact that the Adani Group companies reduced the wealth for large-cap indices, largecaps have outperformed midcaps & smallcaps since the beginning of CY2023. Further, even the valuations for midcaps especially ran ahead of the time.
"Though we are optimistic about smallcaps & midcaps from a long-term standpoint, we suggest investors to have a largecap orientations to get rid of prevailing market volatility. Entry into midcaps & smallcaps should only be taken through Systematic Transfer Plan (STP)/ Systematic Investment Plan (SIP) for a horizon of 7 year plus," said Fisdom in its report.
Midcaps & small-cap categories continued receiving inflows
Following a dip for the previous two months, modest inflows were seen in large-cap-focused categories. The small and midcap category sustained its momentum, which was a result of value buying taking centre stage.
Since there were very few equity new fund offers (NFOs) released in January 2023, the inflows remained consistent in small and midcaps amid value buying.
“Considering the reasonable risk returns tradeoff in midcap and smallcap and the valuations tradeoff vis-à-vis large-cap, in line with our expectations, both these categories are receiving inflows and are expected to do the same in the near term,” said Fisdom Research.