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Dear Reader,
Football fans will remember 2022 as a year when Lionel Messi took home the World Cup in a memorable final, adding another feather in his illustrious cap. But the yearend also brought news that Pele, one of football’s greats, had left the field forever. Football fans who have grown up watching or hearing Pele’s fascinating success story will be left with mixed feelings. In some ways, investors and traders in India too will be nursing similar feelings about the year.
Conventional wisdom was turned on its head. For instance, events that could have caused a bear market in earlier times did not. The US Fed set the tone for the year, by announcing the end of quantitative easing and very low interest rates. Global markets, including India, reacted negatively to rising bond yields. Indian markets saw record outflows by foreign investors with the rupee touching new lows. But even then, domestic investors kept the faith and it was strong domestic inflows that prevented Indian equities from joining a race to the bottom.
Although benchmark indices have posted a mere 3 percent gain in 2022 India’s equity markets still rank among the best-performing markets globally. The S&P 500 has declined by around 20 percent in 2022. In dollar terms, however, the Indian market fell by seven percent.
But one market got hit hard, really hard. Crypto enthusiasts will not forget 2022 for a long time. The price of Bitcoin fell by 65 percent during the year and the cryptocurrency Luna suffered a total collapse in value. Crypto exchange FTX went from buying Super Bowl ads to crash-landing into bankruptcy and its founder was arrested in the Bahamas and extradited to the US to stand trial for charges of alleged fraud. The Bahamas-based crypto exchange started the year with a $ 32 billion valuation only to end the year broke. Thankfully, since regulators had not let crypto go mainstream, the contagion did not spill over to other assets.
The resilience of Indian markets to external shocks was remarkable. A war between two countries or a pandemic spreading in a large economy China would have sent investors rushing to sell. But nothing of the sort happened. While wars have, historically not been too bad for stock markets, this time around the war between Russia and Ukraine meant that key raw materials for energy and food were hit. Natural gas prices skyrocketed, especially in Europe, structurally changing the industry. Sanctions by NATO countries and counteractions by Russia only muddied the water further.
The same was the case in crude oil. The oil cartel continued to throttle supplies but slowing demand from China and other economies battling recession kept oil prices lower.
While uncertainty increased in financial markets, gold continued to play its role as a safe haven. This time around apart from investors, the central bank also rushed to the gold market for cover. Central banks from India, China, and Russia were among the biggest buyers of the yellow metal.
Deal activity also slowed down during the year as mentioned in this report in the Financial Times (free to read for Pro subscribers).
Funding activity in the primary market was also slow. But the highlight of the year was the largest IPO in Indian history – LIC. However, for the rest of the year, only 40 issues came up compared to 72 in the previous year. Funds raised at Rs 59,412 crore were about half that raised in the full year of 2021. Venture capital funding in India saw a 34 percent year-on-year (YoY) drop to $ 23.35 billion. The number of new unicorns halved from 41 to 20.
China continued to be a pain point during the year, with the country dismantling its zero-COVID policy, three years after the outbreak of the virus. A surge in new cases and unaccounted for deaths has put health services under pressure. Being the main engine that was driving global growth, uncertainty in the country continues as we roll into a new year.
The spread of the virus in other countries and the potential damage it may cause will dominate headlines in the first few months of 2023. As for India, Abhijit Dutta, in his article Exports need navigational aid to sail through choppy waters writes that “India has all the more reason to worry as China is New Delhi’s top source of imports and the third-biggest destination for exports.” We have covered the impact of China in a series of articles that can be read here, here, and here.
While 2022 may have been a volatile year, investors will be wondering if 2023 will also play out in similar fashion. If we could have predicted what would transpire in 2022, we may have been brave enough to venture an answer for 2023. A better idea for investors is to take forecasts with a bucket of salt, look at the macro data emerging from key economies and watch for what central banks do. While monetary policy will still play a key role, who knows what new events lie in wait in 2023. But we can assure that we will be keeping a close watch and bring you our unique mix of research recommendations and insights that you can use to guide your investing journey.
Happy new year and happy investing in 2023!
Cheers,Shishir Asthana
Here is a list of some of the stories we published this week.
Stocks
FIEM Industries, City Union Bank, KNR Constructions, Happiest Minds CMS Info Systems, and Suven Pharma
Sector/Companies
Actually, it has been a wonderful year for tech’s future
NTPC: Green energy excites investors but thermal remains vital to earnings
L&T: Foundation for earnings bump-up is being laid
Pharma: Is the pandemic investment template about to play out?
Why this asset financing NBFC offers good risk-reward?
Why should investors be cautious on public sector banks despite staggering performance in 2022?
Is there a correct level to start buying IT stocks?
Banks: It’s not going to be smooth sailing for everyone in 2023
Startup Street | After a year of reckoning, will startups become more prudent in 2023?
Inflation still key to unlocking FMCG outlook
Economy
Economic Recovery Tracker | Consumer sentiment turns positive
In 2023, headwinds created by global uncertainties to work against India’s export sector
Why India urgently needs an economic security policy
A New Year of dissent awaits the RBI’s monetary policy committee
Markets
Nifty’s earnings mix normalises, but high valuations remain a bugbear for investors
Will 2023 offer a Volcker moment to markets?
The government is running out of companies to meet its divestment targets
Trading in a new era requires a flexible mindset
Investors rush out of equity funds to end rough year
Geopolitics
The Eastern Window | What is China’s strategy behind incursions?
India must step up Iran ties despite tough challenges
From the Financial Times
Investors rush out of equity funds to end rough year
Financial trends: investors seek safety via Great Rotation
Others
Startup Street | After a year of reckoning, will startups become more prudent in 2023?
Corporate governance: Time to give greater say to aam aadmi shareholders
Will 2023 see a fundamental shift in the way we work?
Arrests of Venugopal Dhoot, others revive hope in ICICI-Videocon case
