2022 was a year to learn lessons for the global equity and bond market participants. The global equity markets corrected sharply due to various reasons such as Russia-Ukraine war, rising interest rates across the globe to control the surging inflation, Covid cases and lockdowns in China impacting global trades, Europe crisis and so on. The Dow Jones Index corrected by 8.74 percent in the calendar year 2022 and the Nasdaq Index corrected by 33 percent. Other global markets too witnessed correction while Nifty outperformed the global peers and delivered positive returns of 4 percent.
The U.S. Dollar Index rose sharply from 96 at the start of the year to the high of 114 in September 2022 which resulted in the other currencies weakening against the dollar. The U.S. inflation is at 6.4 percent, much above the Fed’s target of 2%. Even in India, the inflation rate (CPI) accelerated to 6.5 percent in January which is above RBI’s target of 4 percent. It has of course been a difficult task for the global leaders and the central banks to sail through these various events which impacted the economic growth to a large extent.
The central banks have increased their interest rates to tame down the inflation and are hopeful that we are nearing the top of the cycle and thus, expect the inflation to cool down soon. Once inflation starts coming down, the Fed would pivot which would be a relief for the equity markets as well.
Now things have started turning positive as the Dollar Index has corrected in last couple of months from 114 to 104 now. If this turns out to be a larger declining trend in the Dollar Index, then it would be positive for the equities. One of another worrying factors for our markets has been the FIIs selling equities. However, investments by retail traders have increased tremendously and we are now witnessing highest monthly inflows which should continue for a long period of time.
The World Bank has said that India is expected to be the fastest growing economy of the seven largest emerging-markets and developing economies and its economic growth is projected at 6.9% for FY23.
In 2023, India’s economy should continue to exhibit strength based on many macro indicators including strong government revenue collections, low corporate and bank leverage and stable external position. Hence, we believe that the Indian market would continue to be one of the most attractive markets for investments in 2023 as well and will deliver decent returns going ahead.
Hence, investors should look for buying opportunities with focus on sectors/stocks that are delivering consistent growth. However, having said that, multiple global factors such as geopolitical uncertainties, recession fears and interest rate trajectory will weigh on investor sentiments. Hence, one should balance risk and reward in investment portfolio by diversifying investments into different sectors but focus on holding a wide variety of high-quality companies.
Prakarsh Gagdani is CEO at 5paisa.com