Sensex and Nifty end FY23 unchanged after swinging over 20% during the year

After delivering stellar returns in the preceding two financial years, the markets took a breather in FY23, with the Sensex and the Nifty having changed little at the end of the fiscal. Sustained rate hikes by global central banks, Russia-Ukraine war, stubborn inflation and developed world banking crisis kept a leash on stock price performance this year.

The Sensex finished the year at 58,991, with a gain of just 0.7 per cent or 423 points. The Nifty 50 index ended at 17,360, down 0.6 per cent, or 105 points, over last fiscal’s close. However, the markets witnessed intense volatility, with Nifty recording an all-time high of 18,812 on December 1, and a low of 15,293 on July 17. Likewise, the Sensex moved in a wide range between 50,921 and 63,583. While the Nifty Midcap 100 managed to eke out marginal gains, the Nifty Smallcap 100 declined nearly 15 per cent during the year, indicating pressure on the broader market as well.

In FY23 central banks across the developed world were forced to prioritise managing price rises even at the cost of economic growth as inflation hit multi-year highs.

The unwinding of post-pandemic stimulus measures and the hike in interest rates kept investors on tenterhooks. The global headwinds led to sustained selling by foreign portfolio investors (FPIs), who pulled out Rs 38,377 crore from the Indian equity market.

The unprecedented sell-off in Adani group stocks triggered by scathing allegations by US-based short seller Hindenburg Research was another highlight for the year. The market value of the 10 Adani group listed stocks dropped as much as Rs 12 trillion ($150 billion) less than a month after the report on January 24. The rout had little bearing on the overall market, but pulled down India’s standing on the world market cap league table. During the year, India broke into the top-five for the first time, but later dropped to No. 7. Further, India’s market cap slipped below $3-trillion once in June 2022 and one earlier this month, as per Bloomberg data.

“The issues in the Adani group had a modest role to play in increasing the volatility in this fiscal. The rest was contributed by factors like interest rates, and geopolitical tensions among other things,” observed U R Bhat, cofounder of Alphaniti Fintech.

Despite India’s meagre returns, India remained one of the best-performing major markets in the world for the most part of the year. However, other world markets played catch up during the last quarter. Yet India managed to beat The MSCI Emerging Markets index, which declined 14.2 per cent, and MSCI World Index declined 10.3 per cent in FY23.

The strong domestic liquidity once again helped cushion India’s market Domestic institutional investors (DIIs) bought shares worth Rs 1.7 trillion in FY23. The flows from retail investors who invested directly in stocks further helped equities. However, sustained volatility led to a drop in retail participation during the March 2023 quarter (Q4FY23).

Expers feel if markets continue to wobble, domestic flows could weaken going ahead, particularly given the attractive yields offered by the bond market.

“We cannot just depend on domestic flows. It is limited, and markets post good returns only when FPI flows come. Domestic investors can at the best mitigate the losses. We cannot expect robust domestic flows for a third year in a row,” said Chokkalingam G, Cofounder, Equinomics.

“Domestic flows should continue unless there is some double-digit correction in markets,” feels Bhat.

Among Nifty components, safe-haven FMCG stocks emerged as the best-performers led by ITC. On the other hand, IT stocks were among the worst-performers weighed down by the global uncertainty.

For next financial year (FY24), analysts are expecting modest returns given the uncertain environment.

In a note earlier this month, Bofa Securities cut its Nifty December 2023 target from 19,500 to 18,000 citing downward pressure on earnings growth estimates.

“Our US economics team believes the Fed will continue to hike rates (5.25-5.5% terminal rate by June 2023), despite the recent credit events in the US. This could continue to weigh on the US & Indian equity markets. Post 6 per cent year-to-date correction, Niſty’s valuation is close to its long-term average but is still overvalued vs EMs. A further 6 per cent correction to Nifty would make it attractive for ‘Buying the Dip’,” it said on March 20, when the Nifty closed at 16,988.

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