2023 started on a low note with the Indian benchmark index Nifty falling around 1 percent in January so far. This comes after a 3.5 percent fall in December 2022. Most experts believe that the volatility is likely to continue in 2023 on the back of macro uncertainty and rate hikes. They expect muted returns this year as well after just 4 percent rise in Indian market in 2022.
Today, the Nifty fell around half a percent in early deals to 17,774 despite low December CPI inflation, low US inflation, better than expected IIP data as well as the overall positive global sentiment. However, the markets started recovering in the second half of the day, jumping around half a percent.
India's headline retail inflation rate eased to a one-year low of 5.72 percent in December from 5.88 percent the previous month. At 5.72 percent, the latest Consumer Price Index (CPI) inflation print is below the consensus estimate. This is the third month in a row that CPI inflation has fallen. It is also the second month in a row that it has come in lower than the upper bound of the Reserve Bank of India's (RBI) 2-6 percent mandate.
Meanwhile, India's industrial growth, as per the Index of Industrial Production (IIP), accelerated to 7.1 percent in November. IIP growth returned to positive territory in November after it had contracted by 4 percent in October - the industry's worst performance in 26 months. The figure has now been revised to show industrial output shrunk by 4.2 percent in October.
US consumer prices fell for the first time in more than 2-1/2 years in December as gasoline and motor vehicle prices declined, offering hope that inflation was now on a sustained downward trend, though the labor market remains tight. The overall CPI fell 0.1 percent from the prior month.
Overall the global sentiment was also positive on the back of strong global trends.
Despite all the positive trends, why did the Indian market fall in early deals today?
Sunil Damania, Chief Investment Officer, MarketsMojo, said that the market operates on its own logic; it can defy logic and reason at times. However, this effect is only temporary and the market must eventually reflect the fundamentals. As a result, one should not be overly alarmed or perturbed by a one-day disconnect between market movement and events on the ground, he stated.
Damania remains confident that the market will offer investors excellent returns in 2023, therefore, despite the current market decline, investors should capitalise on the situation by investing in stocks.
Manish Jain - Coffee Can Fund Manager - Ambit Asset Management, noted that while the Indian macroeconomic environment has been improving, with inflation peaking out and the earnings growth outlook improving, the market has been reluctant to participate.
He believes that the biggest factor for the same has been the global uncertainty that continues to persist. While the China economy has been opening up, the Covid impact remains to be seen, but the same may lead to commodity prices flaring up. At the same time, the Fed has been tightening and the impact of the same US economy is still to be seen, noted Jain. He believes that this near-term volatility in the markets is likely to persist and expects a strong rebound in the second half.
According to Nippon India Mutual Fund, while India is likely to be amongst the fastest-growing economies, the near-term global uncertainties are unlikely to wither away soon and the volatility can be potentially higher in the short run.
"We are attempting to maintain balanced portfolios through a combination of domestic recovery themes along with secular businesses. The attempt is to identify relatively better-valued opportunities across these themes," Nippon said.
From an investor’s perspective given the external risks and their potential impact, investing in a staggered manner or systematic route may help iron out market extremes, it advised. “Given our view that broader markets may do well with the present fundamentals, long-term investors can consider diversified strategies like multi-cap or flexi-cap offerings for equity investments,” it added.
Conservative investors seeking equity exposure with lower volatility may consider asset allocation strategies like - Balanced Advantage/Asset Allocator which manages equity allocations dynamically, suggested Nippon.