Bourses brace for volatility in 2023 after a dull year

For the month of December, the Nifty index was down by 3 per cent while ending CY23 with gains of over 4 per cent. Broader market saw a mixed trend with Nifty midcap 100 closing the year with gains of +3 per cent while Nifty Small-cap 100 saw a sharp decline of 14 per cent.

“As we start the new year 2023, we expect markets to remain sideways in a range in the near term. While fears of recession and spread of covid outside China is capping the upside, we are witnessing strong buying at lower levels which are supporting the markets on the downside,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services. Key developments tracked in 2023 (other than earnings) would be state elections, Union Budget, RBI monetary stance, trends in trade and fiscal deficit, inflation moves, geo political situation globally, commodity price trends globally and economic growth momentum in the world.

“Corporate results for the third quarter and the upcoming Union Budget could provide the much-needed fresh positive triggers. Auto sector is likely to be in focus next week on the back of monthly auto sales data. Metals too will be in focus after China announced to raise export duty on metals,” Khemka said.

According to Vinod Nair, Head of Research at Geojit Financial services, the ongoing volatility is expected to be sustained in the near-term because of high interest rates and a slowing economy. “We believe that value buying is the theme of 2023, with a focus on domestically oriented sectors and buying on dips. Fair valuation, steady earnings, and a robust demand scenario will be the cutting parameters,” Nair said.

Dhiraj Relli, MD & CEO, HDFC Securities, said Indian markets outperformed most other markets in 2022 benefitting out of better management of macros including inflation management and corporate earnings that did not disappoint majorly despite challenging times. “As we enter 2023, India could continue to benefit out of high investment to GDP ratio (at 33 per cent in FY23 versus 30.5 per cent in FY21), higher infra, railway, road and defence spend by government; continued revival in real estate sector, PLI driven investments and supply chains are being consciously decoupled as national security concerns outdo economic efficiency,” Relli said.

On the other hand, worries for India include core inflation remaining entrenched at 6 per cent YoY with most items witnessing no let-up in momentum, pressure on fiscal deficit due to MNREGA spend and subsidies, high Current Account Deficit (4.4 per cent in September 2022 quarter, a 9-year high). Fiscal deficit in India (Centre and total) is not likely to come back soon to prudent levels after the Covid breach.

Emerging markets are likely to benefit from a relatively more benign world when compared to 2022. However, India’s trailing outperformance could take a breather in the first half of CY23, given relative valuations. That said, India is likely to have better growth than most parts of EM due to a relatively strong macro environment. A range of policy reforms implemented over recent years set the base, while further policy action has empowered people and boosted financial savings, directing flows into equities.