Stock markets maintain winning streak for seventh consecutive year

Outperform most global peers even as returns moderate to just over 4% in 2022

India’s benchmark indices were surprisingly resilient in 2022 — a year that witnessed high inflation, rising interest rates, sporadic Covid outbreaks, and a bloody war in Europe.

The Sensex and the Nifty50 ended the year with gains of 4.4 and 4.3 per cent, respectively – the first single-digit returns in four years. However, even these meagre returns were enough to make India one of the best-performing markets in the world, as most of its peers were deep in the red.

2022 is the seventh consecutive year of the benchmark indices posting gains. This is also the second time the Sensex has logged gains for seven straight years, with the index witnessing double-digit returns every year from 1988 to 1994.  

In comparison, the MSCI Emerging Markets index declined 22.3 per cent this year, and the MSCI World index fell 19.2 per cent. The US and Chinese markets, too, have been battered. While the S&P500 and the Nasdaq plunged more than 20 per cent and 30 per cent, respectively, the Shanghai Composite index was down about 15 per cent in 2022.

“The Indian market did well and is probably the best-performing major market. It shows the resilience of the Indian economy which people have recognised,” Jyotivardhan Jaipuria, founder, Valentis Advisors.

In 2022, as inflation hit multi-decade high in many developed economies, their central banks were forced to prioritise managing price rises even at the cost of economic growth. Retail inflation in India largely remained outside the central bank’s tolerance level, only easing in November to 5.88 per cent.   

While the Russia-Ukraine war caused major disruptions in commodity prices, Covid-induced lockdowns in China and the unwinding of post-pandemic stimulus measures kept investors constantly on tenterhooks. The global headwinds triggered massive selling by foreign portfolio investors (FPIs), who pulled out a record Rs 1.21 trillion from the Indian equity market.

FPIs were net buyers in five out of the last six years when the indices gave positive returns. However, strong domestic liquidity helped mitigate the impact of FPI outflows this time. Domestic institutional investors (DIIs) bought shares worth Rs 2.7 trillion.

“Domestic investors have come of age and they can stem the FPI selling. A lot of them were first-time investors who have never experienced a bear market. The way the government handled the after-effects of Covid and managed the fiscal situation and the way the RBI did not resort to aggressive rate hikes gave domestic investors confidence to take bold bets,” said U R Bhat, co-founder of Alphaniti Fintech.

The flows from retail investors who invested directly in stocks further helped equities. The number of dematerialised accounts crossed 100 million this year.

“Most of the retail investor flows come through SIPs with a lot more awareness of the products. The new age brokerages have made it easy to execute orders and one is paying little commission for it,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

The returns in the broader markets were muted with the BSE Midcap index gaining 1.4 per cent and the Smallcap index declining 1.8 per cent in 2022. The Nifty PSU bank index rose 70.7 per cent this year. IT stocks fell the most, with the Nifty IT index declining 26 per cent.

Adani Enterprises was the best-performing Nifty stock, rising 125.7 per cent, followed by state-owned Coal India, which rose 54 per cent. Wipro and Tech Mahindra declined the most amongst the Nifty stocks and fell 45.1 and 41.4 per cent, respectively.