Market Update – December 2022

The recent positive trend in Indian equity markets continued during the month of November. NIFTY50 ended the month up 4.1% at near all-time highs, while broader markets slightly underperformed with S&P BSE Midcap and S&P BSE 250 SmallCap up 2.3% & 3.1% respectively. Global markets staged a sharp comeback and rallied sharply during the month, driven by lower-than-expected US CPI inflation that fuelled hopes that the Federal Reserve could tone down its aggressive pace of interest rate hikes. Dovish remarks in the US Federal Reserve meeting minutes and falling crude/commodity prices also helped. Flows were strong with FPI’s buying ~USD 4.2 bn of Indian equities while DIIs flows were marginally negative at ~USD 0.7 bn.

Going into year end, Global markets have broadly stabilised with foreign flows returning in India. We expect relative strength of markets to continue. Baring near term volatility owing to global events, we feel medium to long-term outlook is quite positive for India. Over the coming 6 months inflation globally will ease and this too bodes well for equity markets. Weak crude prices should also be positive for the Indian economy and also lead to stability in Indian Rupee.

The headline indices are at all-time highs, with valuations being reasonably priced. However, broader markets to some extent, have underperformed. We expect that over the course of next few months, with stability in terms of news-flow, investor interest should return to this segment as well. There is some over exuberance being witnessed in pockets of the market, with short term sharp movements being witnessed, driven by retail investor activity. We would advise staying away from story-based investing and would continue to focus on companies with existing profits, visible profit growth and where fundamentals justify the valuations.

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