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Year End Review Of Indian Stock MarketsAshwin Sanghi has woven two parallel and gripping stories of two kingmakers and kings in his book titled ‘Chanakya's Chant'.
As the name suggests, one of the stories was about Chanakya and Chandragupta Maurya. Sanghi pens a very interesting section where Chanakya is interviewed before getting admitted into a university.
There were a series of intriguing questions and answers. One particular one that I remember is,
‘What is the root of wealth?'
‘The root of wealth is economic activity, and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. In the manner that elephants are needed to catch elephants so does one need wealth to capture more wealth.'
How beautifully and simply he has explained one of the basic principles of economics. A principle that stock market investors experienced in 2022.
In 2021, the stock markets had a dream run. New investors filled the markets with ample liquidity. Companies came out with their IPOs and retail investors did the rest.
However, as the easy money era ended with central banks across the globe tightening liquidity, stock markets were dealt with a severe blow.
In 2022, tightening liquidity and geopolitical tensions caused a correction.
As the year ends, let's take a look at how the Indian share markets performed in 2022.
How did Indian Share Market Perform in 2022
The shift in sentiment was seen in late 2021. Stock markets across the globe witnessed a major correction. US markets in particular were badly harmed.
Consider this…
Meta down over 65%.
NVDA down over 50%.
Netflix down close to 50%.
Amazon and Google down around 45-50%.
This has to be the first time in history that we saw the biggest stocks being down over 50%.
Indian bluechips also suffered as IT stocks witnessed a steep correction due to recession concerns.
However, what set the Indian stock market apart from global peers is how they stood tall in uncertainty. Indian stock markets went on to outperform most emerging markets.
On a year on year (YoY) basis, the BSE Sensex and NSE Nifty registered gains of 5%. During the same period, leading Asian indices like Nikkei are down around 11%, the Hang Seng index is up by 0.2%, while Shanghai Composite is the biggest loser, down 15.1%.
In fact, Wall Street indices saw one of their steepest falls while Indian share markets touched all-time highs. As of 29 December 2022, Dow Jones was down by 8.7% and the tech-heavy Nasdaq saw a heavy fall of 33.4%.
The BSE Sensex traded in a wide range this year, touching its all-time high of 63,583 on 1 December 2022 while hitting its 52-week low of 50,921 points on 17 June 2022.
The building of Indian stock markets stood tall on two pillars:
“India's economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies”.
India's economy is relatively insulated from global spillovers compared to other emerging markets. This is partly because India has a large domestic market and is relatively less exposed to international trade flows.
The other strong reason was the continuous faith of domestic institutional investors (DII).
A major reason for the fall in 2008 was FII divestment. When the rupee deteriorates, FIIs move back to the safety of the dollar to earn higher returns. Hence when FIIs divest from a market, it loses the money in circulation and the market collapses.
In 2022, FIIs divested more money from Indian markets than they divested in 2008 and still, the markets were nowhere near the crash of 2008. This is because every divestment by FIIs was met by encouraging investments from DIIs.
Let us now take a look at the performance of broader markets and sectoral indices.
Performance of broader markets and sectoral indices
Broader markets gave a mixed performance in 2022. During 2022, the BSE Midcap index gained 1% while the BSE Smallcap index fell by 2%.
Smallcap stocks are vulnerable because of their size. Hence, market volatility took a toll on the BSE smallcap index.
Cressanda Solutions, Choice International, and BLS International Services from the smallcap space rallied 313%, 294%, and 248% respectively. They turned out to be true multibagger smallcap stocks in 2022.
Meanwhile, KBC Global, Cerebra Integrated Technologies, and Future Consumer were the worst performing small-cap stocks.
On the sectoral front, the power sector, and the banking sector were the best performing sectors of 2022. Banking stocks witnessed a sharp rally towards the end of 2022 as multiple tailwinds came along for the sector…
Bank Nifty had a dream run in 2022. Bank Nifty went on to outperform Nifty 50 in 2022. Solid revival of credit demand, rise in deposits, interest rate hikes, marked reduction in bad assets, and the government's massive capex push, acted as growth drivers for the sector.
Bank of Baroda, Federal Bank, and IndusInd Bank were some of the best-performing stocks from the banking sector during 2022.
Meanwhile, many PSU stocks also topped the list as they saw a sharp rally post October 2022.
On the other hand, IT sector, healthcare sector, and consumer durable sector were the worst-performing sectors of 2022.
The IT sector proved to be a disaster for investors in 2022. Beginning from bluechip stocks like TCS, Wipro, and Infosys to new-age IT stocks like Zomato, Paytm and Nykaa, all proved to be a huge disappointment.
Global recession concerns, the steep fall in the Nasdaq, attrition, margin pressure, and the great resignation were some of the major factors responsible for the fall of IT stocks.
Investing in the IT sector in 2022 was like losing money in your sleep. On a YoY basis, the IT sector fell 24%.
Brightcom Group, Xelpmoc Design and Tech, and Tanla Platforms were the biggest losers from the IT sector during the year.
After taking a look at broader market aspects, let's take a look at individual stocks.
Top gainers and losers of 2022
Indian stock markets saw a lot of remarkable events in 2022. For example, India became the 5th largest economy in India surpassing the UK economy.
5G spectrum auctions were conducted successfully. Bank Nifty reached all-time high multiple times. There were big stories on mergers and acquisition – the HDFC merger, Adani's acquisition of Ambuja and ACC, the list goes on.
Gautam Adani briefly became the second richest man in the world! The massive rally of Adani group stocks multiplied Gautam Adani's wealth like covid-cases multiplied during the pandemic.
No surprise that the best performing stock of 2022 was Adani Enterprises. Adani Enterprises rallied 125% in 2022. It is a known fact that the Adani group is spreading its wings in many sectors.
Being the flagship company of the Adani group, Adani Enterprises is the engine of the train which is stopping at various sectors. Adani Enterprises is the incubator of the Adani group helping it to enter the diverse business.
Following Adani Enterprises was Coal India (up by 54% in 2022) followed by the very unexpected FMCG giant ITC (up by 52% in 2022), and auto sector player Mahindra & Mahindra (up by 49%).
Axis Bank also needs a mention which was up by 38% in 2022.
Owing to the steep fall in the IT sector, the top three losers of 2022 were from the IT sector. The top losers of 2022 were Wipro, Tech Mahindra, Divis Laboratories, Infosys, and Tata Motors.
IPOs of 2022
2021 was one of the best years for primary markets. Around 63 new companies were listed in 2021. The fast and furious flow of IPOs was carried forward to 2022. The year began with the expectation of some very big IPOs making it to the market in 2022.
The IPO market raised over Rs 570 billion (bn) in 2022 as compared to Rs 1.2 tn raised in 2021.
Adani Wilmar was the best performing IPO of 2022. Compared to the IPO price, Adani Wilmar's stock has skyrocketed by nearly 140% since listing. In less than a year, Adani Wilmar is a multibagger stock. Though it was falling sharply towards the end of year.
The share was listed at a discount compared to its offer price.
After Adani Wilmar, Venus Pipes, Hariom Pipe Industries, and Veranda Learning Solutions were the next best in line.
If we compare listing day performance, DCX Systems gave the highest return of 49.1%, followed by Harsha Engineers at 47.2%, and Hariom Pipe Industries at 46.9%.
There were IPO duds too… When loss-making IPOs started hitting the markets, this was expected to happen. There were valuation concerns too. IPOs like LIC, Delhivery, AGS Transact Technologies, Inox Green Energy, and Abans Holdings were the worst performing IPOs of 2022.
2022 confirmed the known belief that the bigger the IPOs, the harder they fall. LIC was the biggest IPO of 2022. It had an issue size of Rs 210 bn. The stock went on to give negative returns of more than 28% since its listing.
Some notable mentions…
2022 saw the IPO of the first pure play Indian drone company - Droneacharya Aerial Innovations.
The year also saw the first confidential IPO filing by Tata Play. Speaking of Tata group, the group has also filed IPO papers for its other company Tata Technology. This could be the most awaited IPO as many are terming Tata Technologies as the next TCS.
What does 2023 have in store?
The markets were set for a Christmas rally in December 2022. But the news of covid-19 outbreak in China spoiled the party.
2022 was a wild, turbulent, and volatile year for the markets. The same situation that existed in 2022, still persists. The world has not moved away from the physical or financial health hazards of covid-19.
The report by the world bank further states that a challenging external environment will affect India's economic outlook through different channels. The report forecasts that the Indian economy will grow at a slightly lower rate of 6.6% in the 2023-24 financial year.
The Russia-Ukraine war is expected to come to an end in 2023. It is expected that Russia will hold talks with Ukraine in 2023. As a result, all the commodity prices that were rising in 2022 because of the war situation, may be tamed. This will be good news for India as crude oil prices are expected to come down.
Energy prices may come down as big economies are producing more crude oil and become self-dependent on energy prices.
Interest rates were rising in 2022 and it is expected that the same momentum will follow in 2023. Rising interest rates may dampen the market sentiment.
The Reserve Bank of India (RBI) is likely to use every opportunity to rebuild its reserve stockpile as inflows return to emerging markets, a move that could weigh on the rupee.
Thus global economies might get a boost in 2023. Indian stock markets outperformed most of their peers in 2022 but this might change as there are expectations that China and Korea may outperform the Indian stock markets in 2023.
Majority of experts think consumer sentiment will see an uptick in 2023 and the Indian stock market's performance will be stellar in key areas including banking, automobiles, real estate, and of course, fundamentally strong stocks from these sectors.
Investment Takeaway
In 2021, investors were rushing to markets like a flock of sheep rushes to a field of grass. The concept of value investing somehow seemed outdated in 2021.
However, as soon as 2022 began, all those notions were gone with the wind and value investing made a comeback.
As we move in to 2023, do note that this is not going to be a year of easy money. But it may be a year for some good gains as most of the factors look positive.
2021-2023 may set out a whole new chronology of events. 2021 was a year of crazy gains. 2022 was a year of steep fall, and 2023 may be a year of calculated gains.
To wrap up, here are a few words of wisdom from none other than Warren Buffett…
“It is wise for investors to be fearful when others are greedy, and greedy when others are fearful.”
Perhaps the most important lesson to learn from 2022 was the need to have a proven winning investment strategy.
While every investor understands this in principle, very few actually have one. And even fewer have the discipline to stick to it when tested by a market correction.
Hope you make wise choices this year. Happy new year and happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
As the name suggests, one of the stories was about Chanakya and Chandragupta Maurya. Sanghi pens a very interesting section where Chanakya is interviewed before getting admitted into a university.
There were a series of intriguing questions and answers. One particular one that I remember is,
‘What is the root of wealth?'
‘The root of wealth is economic activity, and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. In the manner that elephants are needed to catch elephants so does one need wealth to capture more wealth.'
How beautifully and simply he has explained one of the basic principles of economics. A principle that stock market investors experienced in 2022.
In 2021, the stock markets had a dream run. New investors filled the markets with ample liquidity. Companies came out with their IPOs and retail investors did the rest.
However, as the easy money era ended with central banks across the globe tightening liquidity, stock markets were dealt with a severe blow.
In 2022, tightening liquidity and geopolitical tensions caused a correction.
As the year ends, let's take a look at how the Indian share markets performed in 2022.
How did Indian Share Market Perform in 2022
The shift in sentiment was seen in late 2021. Stock markets across the globe witnessed a major correction. US markets in particular were badly harmed.
Consider this…
Meta down over 65%.
NVDA down over 50%.
Netflix down close to 50%.
Amazon and Google down around 45-50%.
This has to be the first time in history that we saw the biggest stocks being down over 50%.
Indian bluechips also suffered as IT stocks witnessed a steep correction due to recession concerns.
However, what set the Indian stock market apart from global peers is how they stood tall in uncertainty. Indian stock markets went on to outperform most emerging markets.
On a year on year (YoY) basis, the BSE Sensex and NSE Nifty registered gains of 5%. During the same period, leading Asian indices like Nikkei are down around 11%, the Hang Seng index is up by 0.2%, while Shanghai Composite is the biggest loser, down 15.1%.
In fact, Wall Street indices saw one of their steepest falls while Indian share markets touched all-time highs. As of 29 December 2022, Dow Jones was down by 8.7% and the tech-heavy Nasdaq saw a heavy fall of 33.4%.
The BSE Sensex traded in a wide range this year, touching its all-time high of 63,583 on 1 December 2022 while hitting its 52-week low of 50,921 points on 17 June 2022.
The building of Indian stock markets stood tall on two pillars:
- Better economic prospects
- Strong participation of domestic investorss
“India's economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies”.
India's economy is relatively insulated from global spillovers compared to other emerging markets. This is partly because India has a large domestic market and is relatively less exposed to international trade flows.
The other strong reason was the continuous faith of domestic institutional investors (DII).
A major reason for the fall in 2008 was FII divestment. When the rupee deteriorates, FIIs move back to the safety of the dollar to earn higher returns. Hence when FIIs divest from a market, it loses the money in circulation and the market collapses.
In 2022, FIIs divested more money from Indian markets than they divested in 2008 and still, the markets were nowhere near the crash of 2008. This is because every divestment by FIIs was met by encouraging investments from DIIs.
Let us now take a look at the performance of broader markets and sectoral indices.
Performance of broader markets and sectoral indices
Broader markets gave a mixed performance in 2022. During 2022, the BSE Midcap index gained 1% while the BSE Smallcap index fell by 2%.
Smallcap stocks are vulnerable because of their size. Hence, market volatility took a toll on the BSE smallcap index.
Cressanda Solutions, Choice International, and BLS International Services from the smallcap space rallied 313%, 294%, and 248% respectively. They turned out to be true multibagger smallcap stocks in 2022.
Meanwhile, KBC Global, Cerebra Integrated Technologies, and Future Consumer were the worst performing small-cap stocks.
On the sectoral front, the power sector, and the banking sector were the best performing sectors of 2022. Banking stocks witnessed a sharp rally towards the end of 2022 as multiple tailwinds came along for the sector…
Bank Nifty had a dream run in 2022. Bank Nifty went on to outperform Nifty 50 in 2022. Solid revival of credit demand, rise in deposits, interest rate hikes, marked reduction in bad assets, and the government's massive capex push, acted as growth drivers for the sector.
Bank of Baroda, Federal Bank, and IndusInd Bank were some of the best-performing stocks from the banking sector during 2022.
Meanwhile, many PSU stocks also topped the list as they saw a sharp rally post October 2022.
On the other hand, IT sector, healthcare sector, and consumer durable sector were the worst-performing sectors of 2022.
The IT sector proved to be a disaster for investors in 2022. Beginning from bluechip stocks like TCS, Wipro, and Infosys to new-age IT stocks like Zomato, Paytm and Nykaa, all proved to be a huge disappointment.
Global recession concerns, the steep fall in the Nasdaq, attrition, margin pressure, and the great resignation were some of the major factors responsible for the fall of IT stocks.
Investing in the IT sector in 2022 was like losing money in your sleep. On a YoY basis, the IT sector fell 24%.
Brightcom Group, Xelpmoc Design and Tech, and Tanla Platforms were the biggest losers from the IT sector during the year.
After taking a look at broader market aspects, let's take a look at individual stocks.
Top gainers and losers of 2022
Indian stock markets saw a lot of remarkable events in 2022. For example, India became the 5th largest economy in India surpassing the UK economy.
5G spectrum auctions were conducted successfully. Bank Nifty reached all-time high multiple times. There were big stories on mergers and acquisition – the HDFC merger, Adani's acquisition of Ambuja and ACC, the list goes on.
Gautam Adani briefly became the second richest man in the world! The massive rally of Adani group stocks multiplied Gautam Adani's wealth like covid-cases multiplied during the pandemic.
No surprise that the best performing stock of 2022 was Adani Enterprises. Adani Enterprises rallied 125% in 2022. It is a known fact that the Adani group is spreading its wings in many sectors.
Being the flagship company of the Adani group, Adani Enterprises is the engine of the train which is stopping at various sectors. Adani Enterprises is the incubator of the Adani group helping it to enter the diverse business.
Following Adani Enterprises was Coal India (up by 54% in 2022) followed by the very unexpected FMCG giant ITC (up by 52% in 2022), and auto sector player Mahindra & Mahindra (up by 49%).
Axis Bank also needs a mention which was up by 38% in 2022.
Owing to the steep fall in the IT sector, the top three losers of 2022 were from the IT sector. The top losers of 2022 were Wipro, Tech Mahindra, Divis Laboratories, Infosys, and Tata Motors.
IPOs of 2022
2021 was one of the best years for primary markets. Around 63 new companies were listed in 2021. The fast and furious flow of IPOs was carried forward to 2022. The year began with the expectation of some very big IPOs making it to the market in 2022.
The IPO market raised over Rs 570 billion (bn) in 2022 as compared to Rs 1.2 tn raised in 2021.
Adani Wilmar was the best performing IPO of 2022. Compared to the IPO price, Adani Wilmar's stock has skyrocketed by nearly 140% since listing. In less than a year, Adani Wilmar is a multibagger stock. Though it was falling sharply towards the end of year.
The share was listed at a discount compared to its offer price.
After Adani Wilmar, Venus Pipes, Hariom Pipe Industries, and Veranda Learning Solutions were the next best in line.
If we compare listing day performance, DCX Systems gave the highest return of 49.1%, followed by Harsha Engineers at 47.2%, and Hariom Pipe Industries at 46.9%.
There were IPO duds too… When loss-making IPOs started hitting the markets, this was expected to happen. There were valuation concerns too. IPOs like LIC, Delhivery, AGS Transact Technologies, Inox Green Energy, and Abans Holdings were the worst performing IPOs of 2022.
2022 confirmed the known belief that the bigger the IPOs, the harder they fall. LIC was the biggest IPO of 2022. It had an issue size of Rs 210 bn. The stock went on to give negative returns of more than 28% since its listing.
Some notable mentions…
2022 saw the IPO of the first pure play Indian drone company - Droneacharya Aerial Innovations.
The year also saw the first confidential IPO filing by Tata Play. Speaking of Tata group, the group has also filed IPO papers for its other company Tata Technology. This could be the most awaited IPO as many are terming Tata Technologies as the next TCS.
What does 2023 have in store?
The markets were set for a Christmas rally in December 2022. But the news of covid-19 outbreak in China spoiled the party.
2022 was a wild, turbulent, and volatile year for the markets. The same situation that existed in 2022, still persists. The world has not moved away from the physical or financial health hazards of covid-19.
The report by the world bank further states that a challenging external environment will affect India's economic outlook through different channels. The report forecasts that the Indian economy will grow at a slightly lower rate of 6.6% in the 2023-24 financial year.
The Russia-Ukraine war is expected to come to an end in 2023. It is expected that Russia will hold talks with Ukraine in 2023. As a result, all the commodity prices that were rising in 2022 because of the war situation, may be tamed. This will be good news for India as crude oil prices are expected to come down.
Energy prices may come down as big economies are producing more crude oil and become self-dependent on energy prices.
Interest rates were rising in 2022 and it is expected that the same momentum will follow in 2023. Rising interest rates may dampen the market sentiment.
The Reserve Bank of India (RBI) is likely to use every opportunity to rebuild its reserve stockpile as inflows return to emerging markets, a move that could weigh on the rupee.
Thus global economies might get a boost in 2023. Indian stock markets outperformed most of their peers in 2022 but this might change as there are expectations that China and Korea may outperform the Indian stock markets in 2023.
Majority of experts think consumer sentiment will see an uptick in 2023 and the Indian stock market's performance will be stellar in key areas including banking, automobiles, real estate, and of course, fundamentally strong stocks from these sectors.
Investment Takeaway
In 2021, investors were rushing to markets like a flock of sheep rushes to a field of grass. The concept of value investing somehow seemed outdated in 2021.
However, as soon as 2022 began, all those notions were gone with the wind and value investing made a comeback.
As we move in to 2023, do note that this is not going to be a year of easy money. But it may be a year for some good gains as most of the factors look positive.
2021-2023 may set out a whole new chronology of events. 2021 was a year of crazy gains. 2022 was a year of steep fall, and 2023 may be a year of calculated gains.
To wrap up, here are a few words of wisdom from none other than Warren Buffett…
“It is wise for investors to be fearful when others are greedy, and greedy when others are fearful.”
Perhaps the most important lesson to learn from 2022 was the need to have a proven winning investment strategy.
While every investor understands this in principle, very few actually have one. And even fewer have the discipline to stick to it when tested by a market correction.
Hope you make wise choices this year. Happy new year and happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com