Samvat 2078: A year of India's stock market outperformance to global peers

Weakness in global equities was on the back of runaway inflation, disruption in commodity prices due to the Russia-Ukraine war, lockdowns in China, and unspooling of post-pandemic stimulus

In absolute returns, Samvat 2078 was a letdown. The benchmark Sensex and Nifty ended marginally lower — the first year of negative returns since Samvat 2071. However, the highlight of the year was the resilience of domestic markets and their sharp outperformance to global peers.

Sample this: the Morgan Stanley Capital International (MSCI) Emerging Markets Index fell 33 per cent in the past year, the Dow Jones Industrial Average dropped 13 per cent, and the MSCI All Country World Index fell 23 per cent. The Nifty, however, fell less than 2 per cent in local currency terms.

The weakness in global equities was on the back of runaway inflation, disruption in commodity prices due to the Russia-Ukraine stand-off, lockdowns in China, and unspooling of post-pandemic stimulus measures.

Sustained price rise in the US and other major economies, with inflation hitting multi-decadal highs, challenged the ‘inflation is transitory’ narrative that major central banks proclaimed in the previous year.

From being dismissive, central banks had to prioritise fighting inflation by hiking rates and shrinking balance sheets. The near-zero interest rates and aggressive bond purchases by the US Federal Reserve had propelled a massive rally in equity markets, including India, post-pandemic.

Towards the end of the year, central banks went to the extent of stating that inflation had to be tamed, even if compromising growth was the price to be paid. This stance triggered passive flight of capital from the equities market. The Indian market was no exception.

Foreign portfolio investors (FPIs) aspirated a record Rs 2 trillion ($26 billion) from the domestic market in Samvat 2078. Under normal circumstances, this would have led to a sharp fall in stock markets. However, strong domestic liquidity helped offset FPI outflows.

In Samvat 2078, mutual funds pumped in Rs 2.2 trillion into domestic stocks. The market also saw strong inflows from retail investors who invest directly in the markets. During the year, India’s dematerialised account tally topped 100 million for the first time.

“Every month of last year, millions of new investors entered the market.  Many of them did not have much experience with the risk aspects of any asset class. Moreover, every asset class was a disappointment - bullion, cryptocurrency or real estate. Interest rates were down and not good enough to beat inflation. These new investors found equities promising enough to make some short-term gains,” says Chokkalingam G, founder, Equinomics Research & Advisory.

The relatively better prospects of the Indian economy and strong domestic flows are attributed as reasons for India’s better position vis-à-vis peers. This outperformance is likely to attract funds the following year.

“We will see money coming back due to our outperformance. After initial turbulence, global funds have to get invested somewhere. They will invest in markets that will perform better than others. At the same time, our domestic liquidity is also likely to be high. The next 12 months will be a big opportunity for India to stand out,” says Ambareesh Baliga, an independent analyst.

Midcaps fell in line with benchmark indices, but the correction was steeper in small-caps. The Nifty Midcap 100 fell 0.9 per cent in Samvat 2078, while the Nifty Smallcap 100 fell 11.3 per cent.

Fast-moving consumer goods (FMCG) stocks gained the most, with the Nifty FMCG Index rising 15 per cent. FMCG stocks are considered defensive bets whenever there is global financial turmoil, observe analysts.

Realty stocks declined the most. The Nifty Realty Index slid 22 per cent. Adani Enterprises was the best-performing Nifty stock. It rose a whopping 126 per cent, followed by ITC at 57 per cent.

Wipro and Tech Mahindra were the worst-performing Nifty stocks. They fell 41.5 per cent and 30.5 per cent, respectively. The sell-off in information technology majors came amid downgrades by several brokerages, citing global uncertainty and margin pressures.