Market Outlook – Jan’23

Market Outlook January 2023

The bear rally:

As we close out 2022, we wish all our beloved patrons a very happy and prosperous new year. The markets in the month of Dec consolidated by about ~3.5% and it performed as per our expectations following the majority of the global peers staying within the initial support and resistance levels. Indian markets were one of the best performers among its global peers in 2022 mainly because of the improving domestic consumer confidence and demand even with relatively high inflation. The FIIs last month were net sellers and solve ~14k Crs worth of equity but this selling was offset by DIIs who bought more than 24k Crs worth of equity. Nifty closed out at 18105 levels and Sensex closed out at 60840 levels.

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Sectorial performance:

Looking at the sectorial performance for the month of Dec, most sectors dipped. However, there was one sector that performed positively i.e. PSU Bank. Capital goods companies have witnessed strong order bookings until now, with recession fears looming; sentimentally, global orders may see some softening. Financial industry earnings momentum continues to remain strong led by robust credit growth. Media companies are expected to weaken in the next quarter mainly due to reduced advert spending from FMCG companies. The IT sector is expected to post a soft quarter, impacted by seasonality and worsening macro. Coming to the sectors which we expect to do well this month are Banking and Consumer goods. 

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Important events & Updates:

  1. The manufacturing purchasing managers’ index, compiled by S&P Global, rose to 57.8 in December from November’s 55.7. It has maintained a strong performance as time progressed, wrapping the year with the best expansion in production seen since November 2021.
  2. Bank loans surged nearly 18% in November, compared with 7% a year ago, reflecting demand buoyancy from both individuals and companies despite an increase in financing costs since early summer.
  3. India’s unemployment rate touched a 16-month high of 8.3% in Dec’22.
  4. Money supply (M3) expanded by 8.9% YoY as on November 18, 2022, while bank credit rose by 17.2%.
  5. The deposit Growth rate increased to 9.6% in Nov 2022 compared to 8.2% in the previous month.
  6. The Indian auto industry posted its highest-ever annual domestic passenger vehicle (PV) sales in CY22 at 3.793mn units on the back of pent-up demand and better semiconductor chip supply.
  7. India’s services PMI for December has come in above the key level of 50 and rose to 58.5, higher than the expected 55.5 indicating a sharp increase in output.
  8. GST collection rose by 15% compared to the same time last year and stood at 1.49 Lakh Cr for Dec’22.

Outlook for the Indian Market:

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The Global economy has been under pressure since last year due to Inflation and many geopolitical factors, the Russia-Ukraine conflict may have caused the end of the idea of globalization as we knew it since it was already strained due to the pandemic and this conflict might have a polarizing effect. Amidst such a rough global economic condition, India has been a bright spot; it has been able to withstand such pressures, supported by strong domestic demand. India’s economy is likely to grow by 7% in the current fiscal year, which is the highest among the major global economies. Even though Investment income has been pressured and saw outflows of $ 12 bn in the second quarter of the ongoing fiscal year, Private transfers or remittances have been strong with inflows having grown 30% (YoY) to nearly $ 25 bn which has offset the outflows. Most of the high-frequency indicators such as the High consumer confidence, Tax collection growth, PMI, and CPI numbers have given positive indications which are shreds of evidence of India’s solid fundamentals, resilience, and growth potential.  The outlook for this month on fundamental & technicals is explained.

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 Fundamental outlook: The month of December as expected in our previous outlook was volatile and this month also we expect to see some volatility in the market but it may remain trading sideways. There are many positive macro indicators such as inflation which seems to be coming down and this helps sectors such as chemicals and FMCG, whose margins were under pressure due to high inflation. We are already witnessing an upward trend and the shares of leading players in these sectors. However, the global slowdown is still having a negative impact on some sectors such as Tech and Auto due to weakening global demand.

Technical outlook: The Indian market was mostly in line with its global peers last month. Many Indian companies are getting rerated aided by valuation comfort, robust balance sheets, and strong order inflows due to positive domestic macro indicators. Inflation concerns easing, commodity prices cooling off, and peak-out in interest rate tightening are expected to aid India to navigate global weather in 2023. Looking at the technicals there is immediate resistance at 18700 and major resistance around 19300 levels for the month of Jan. There is immediate support at 17500 levels and major support at 16900 levels. The RSI for the Nifty 50 is around 62 which signifies that it is slightly in the overbought zone.

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Outlook for the Global Market:

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Most of the major global economies consolidated in CY 2022, the vulnerability of Europe to Russian energy sanctions, China’s housing market problems, and the impact on global food supplies because of the continued war in Ukraine are all significant headwinds that contributed to the slowdown. Even though many have fears of recession this year in the US, the macro data such as job gains, industrial production, and retail sales are still slightly positive. Hence recession fears might have been blown out of proportion and since the Fed’s tightening cycle has been fast, about 300 basis points since March of 2022, and 10-year bond yields at 4%, over twice the level at the beginning of the year, we can expect economic activity continue to slow over the next six months but any of the current geopolitical risk escalating might cause one. Looking at the Eurozone, The ECB, having raised its benchmark rate by 75 bps previously, raised it by 50 bps as it struggles to contain seemingly out-of-control inflation. The inflation which seemed to have started receding in November might not be a broader trend since the inherent problems which caused the inflation is yet to be resolved hence the ECB is expected to continue tightening since it has already started to reduce its balance sheet Chinese retail sales performed especially poorly due to COVID-19 restrictions in November hence the government is rapidly easing COVID-19–related restrictions to have a positive impact on growth but if the COVID situation worsens then based on its zero COVID policy it might start putting restrictions or slow the easing.

Outlook for Gold:

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In the month of Dec, the Gold market performed positively by around ~3% and the demand for gold as a hedge against rising inflation still remains strong especially now since fears of a recession are amplified. The outlook for gold remains slightly positive to neutral for the near term.

What should Investors do?

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India’s economy is expected to navigate rough global weather in 2023 due to resilient consumer demand, better corporate performance, and the abating of inflation, even as the year is likely to be full of challenges and opportunities. Indian private sector firms signaled a strong performance in Dec’22, with the fastest expansion in output in 11 years and this is expected to sustain despite global headwinds. However, there are some domestic headwinds such as the country’s balance of payment, which is expected to be pressured this year and is likely to record a deficit in FY23 for the first time since FY19. This is expected to further weaken the rupee against the Dollar in the coming months. 

To conclude, The overall financial position of the central government seems manageable, the deleveraging, improving regulatory clarity, digitalization, clean balance sheets of Banks, etc. have helped the fundamentals to strengthen which is a hugely positive indicator regarding the current health and future prospect of the Indian economy. We expect the Indian markets to be volatile and trade sideways or consolidate based on upcoming global and domestic macros such as CPI, IP data, etc. After considering all the factors we would recommend the investors take advantage of dips to add quality stocks based on fundamentals if they are available at a relative discount but avoid aggressive lump sum investments.


This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.

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