Investment lessons from 2022

Investment lesson

Stock market provides lots of learning experiences. These experiences can help investors avoid mistakes and take the right decisions to optimize returns from the market. So, what are the major takeaways from CY2022?

Three features stand out. The first is the impressive outperformance of India. While most major markets were down by 10 to 20 percent in CY2022, India has outperformed. As on 20th December 2022, the S&P 500 is down by 20 percent YTD, STOXX 50 is down by 18 percent, MSCI World Index is down by 15 percent, and MSCI EM Index is down by 18 percent. In sharp contrast to this downtrend in most global markets, Nifty is up by 8 percent for the year. This outperformance reflects Indian economy’s superior growth and the corporate sector’s good earnings growth.

The dominant trend that swayed market fortunes in 2022 was the emergence of Indian domestic investors as a force to reckon with. The massive selling by FIIs of equity worth Rs 146293 crores in 2022 up to 20th December was completely absorbed by domestic investors. FIIs cumulatively sold equity worth $30 billion in 2021 and 2022. This massive selling would have crashed the market but for the support extended by domestic investors. In August 2022, the total number of demat accounts crossed ten crores, and the AUM of the mutual fund industry reached Rs 40 lakh crores. More important, inflows through SIPs crossed Rs 13000 crores a month. Domestic investors have come of age in India, and they have emerged as a force to reckon with. Investment by domestic investors emerging as a strong counter to the ‘hot money’ from fleet footed FIIs is a major structural shift happening in the Indian capital market.

Another interesting feature of the market trend in 2022 is that the sectoral churns are happening faster. The post-Covid world is characterized by many new normals. In the Covid year 2020 pharma was the best performing sector. With Covid coming under control, the pharma industry lost its market leadership status, and IT became the best performing sector in 2021, driven by accelerated digitalization. Fears of a possible recession in US in 2023 and concerns of slowdown in orders halted the spectacular rally of the Tech segment, which became an under performer in 2022. Financials became the best performing sector, and within financials the PSU Bank index surprised with a spectacular rally of above 60 percent YTD (as on 20th December 2022).

What do the tea leaves indicate in 2023? Since credit growth in the economy continues to be impressive and the asset quality of banks is the best in decades, banks are likely to sustain their performance in 2023 too but returns will not be as spectacular as in 2022 due to the base effect. The capital goods segment looks set to improve its performance since signs of capex revival in manufacturing are strong. Telecom gaining strength from the 5G launch is likely to consolidate in 2023. Commodities have the potential to do well, but their performance will depend a lot on the trends in the Chinese economy. Autos are on rebound, and auto components are on strong wicket. IT may be weak in early 2023 on US recession fears; but corrections can turn out to be opportunities for long-term investors. Rising rates augur well for fixed income assets, and prospects for gold look promising in 2023.

Read more articles by Dr. V.K. Vijayakumar, Chief Investment Strategist, Geojit

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