Nifty to end 2022 on a good note? Check outlook for New Year 2023

Nifty outlook for New Year 2023: Year 2022 was a volatile period for the Indian stock markets as global uncertainties took the investors on a rollercoaster ride. While the markets in India comfortably outperformed the US markets, it failed to give the double-digit returns of 2020 and 2021. While the bellwether Nifty index is up just over 1% so far in the year, Sensex has accrued a return of 2.2% in the same period.

Nifty in 2022: Nifty Annual Return Trend

So, what were the prevalent trends that affected the Indian markets in 2022? And how is 2023 looking  for the investors? Let’s find out.

Stock market India 2022: 5 Key Trends of this year

Interest Rate Hikes: By ushering in a low interest rate regime to quell the fears of the pandemic, the RBI had provided support to the markets. The markets reached all-time highs as a gush of new investors entered the markets. However, with soaring inflation levels, the RBI’s stance became hawkish. The interest rate, which was 4.40% in May 2022, will close the year at 6.25%. This had negatively affected the markets.

Soaring Inflation: Following from the previous point, the low interest rate environment resulted in high inflation levels for India. The retail inflation rate came in at 5.88% in November, which was an 11-month low. However, this was the first time that the rate dipped below the RBI’s tolerance level of 6%. Consequently, the high inflation levels hurt the markets and their growth.

CPI Inflation trend in 2022

Strength in Banking Stocks: Even amid the uncertainties plaguing the markets, there was one sector which shone. The Nifty Bank index has gained 19% so far this year, which is the highest among all the major sectoral indices. The appreciation in the index can be attributed to recovery of credit demand, rising interest rates, and a sharp decline in the Non-performing Assets.

Bank Nifty in 2022

Weakness in the IT Sector: Investors have made massive wealth by investing in IT stocks over the years. However, the Nifty IT index has plunged almost 27% so far this year. The reasons for the decline have been many. While a looming recession in its core market of the US has been a massive headwind, rising interest rates have also hurt these stocks. Yet, many analysts believe that the IT stocks’ valuation have reached comfortable levels now and investors can add some of these stocks to their portfolio.

Muted IPO Market: All the euphoria around IPOs from the heydays of 2021 all but faded out in 2022. In 2021, the markets witnessed 64 IPOs raising a total of Rs 1.18 lakh crore. This number exactly halved in 2022 to 32, raising just Rs 55,101 crore. Underperformance of earlies IPOs like Paytm, Policybazaar, and Nykaa along with other economic troubles dampened the spirits of the IPO market.

IPOs in 2022

Nifty 50 outlook for 2023: 5 Trends to Look Out for in New Year

Rising Covid Cases: As the year draws to a close, Covid has reared its ugly head. Again. After two years of hurdles, the world finally felt that they had left Covid behind for good. However, rising Covid cases in China with the emergence of a new subvariant has rattled global markets. India has not been saved by the same too as the Nifty has declined by more than 4% so far this month - the worst performance in almost 3 decades.

US Recession: The US Central Bank’s continuous rate hikes to fight inflation have dented investor confidence. Further, the Central Bank’s recent hawkish stance has also not helped matters as it has hinted at no ease in rate hikes in 2023 too. This has led to fears that the world’s largest economy will head to a recession next year. And when the US sneezes, the world catches a cold. A recession in the US will surely negatively affect the Indian markets too.

Inflation Levels: 2022 saw record inflation levels in India. However, the cooling of inflation in November offered some respite. Although experts believe that the RBI’s tone remains hawkish, it will hike rates slowly in 2023, providing comfort to the markets.

Valuation Worries: The outperformance of the Indian markets in the last 18 months has lifted investors’ spirits. However, experts believe that the valuations in the Indian markets have reached uncomfortably high levels and it is expected that it will underperform next year. While Citi has cited a target of 17,700 by the end of 2023, which is lower than the current levels, Jefferies remain cautious due to high valuations.

FII Flows: The flow from FIIs will be critical for the Indian stock markets in 2023. Analysts remain optimistic about the FII flows into India even amid wider economic worries. With a massive capex push from the Government, rising income levels, and growth in credit demand, expectations are high that FIIs will invest heavily in the Indian markets. This renewed confidence can be gauged from the FII data from November and December when FIIs turned net buyers.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.