Ukraine war, inflation: Factors that will guide stock market in Samvat 2079

Rising inflation triggered by geopolitical tensions amid the Ukraine-Russia war and ensuing global central bank action to tighten the monetary policy hit equities in Samvat 2078. Indian equities, however, proved to be resilient, bolstered by healthy retail and HNI participation, expanding systematic investment plans (SIPs), and lump-sum inflows which helped offset the large outflows from foreign portfolio investors (FPIs).

As we enter Samvat 2079, analysts expect markets to remain under pressure and witness more volatility in the near-term on account of deterioration in global macros, and uncertainties prevailing in western economies.

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Here's a lowdown of all the factors that will likely shape the markets in Samvat 2079:

Inflation & monetary policies: The pace of price rise, and the subsequent policy action by central banks will be the biggest trend setter for the markets, analysts said. VK Vijayakumar, chief investment strategist at Geojit Financial Services, for instance, believes if the inflation remains stubborn and the US Federal Reserve continues to suck out liquidity, global equity markets could remain under pressure.

On the other hand, Gaurav Dua, head of capital market strategy at Sharekhan by BNP Paribas believes the central banks have already taken aggressive rate hike along with systematic withdrawal of excess liquidity in Samvat 2078.

"The central banks are likely to finally reach the stated objective in terms of interest rates, and liquidity conditions will anchor inflationary expectations. Moreover, the higher base effect would also make the inflation growth figures to moderate in the first half of calendar year 2023," Dua said.

Given this, if global inflation starts moderating, central banks may go slow on tightening, leading to a market rally.

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Ukraine-Russia war: Another major factor that can impact equity markets in Samvat 2079, Vijayakumar of Geojit Financial Services said, would be the course of the Ukraine war. "If the war ends, that would be a big relief to the European energy crisis. However, if the war prolongs, the Euro zone is likely to tip into recession," he added.

Oil and gas prices: Apart from the Ukraine war, supply constraints amid production cuts announced by OPEC+ will keep oil prices volatile. This, analysts said, will be keenly tracked by Indian policymakers as crude oil corners a significant portion of the import bill. Starting November, OPEC+ will cut production by two million barrels per day. Moreover, a harsh winter in the West will drive up demand for crude oil, and natural gas. This mismatch between demand and supply will swing prices, and remains a key overhang for the Indian markets, analysts said.

Strength in the Indian economy: If the Indian stock markets have to sustain their outperformance over global peers, they need to strengthen the 3C's -- credit growth, capital expenditure, and consumption -- said Devang Mehta, Head of Equity Advisory at Centrum Wealth.

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"The outperformance of our markets will likely continue in Samvat 2079 as fundamentals remain strong, and corporate earnings improve. 3 C's -- discretionary consumption; greenfield and brownfield capex by the private sector; and a double-digit credit growth -- need to hold in the next Samvat, after the global dust settles, in order for Indian equities to attract investors' attention," he said.

FII and DII flows: The direction of foreign portfolio investors' (FPIs') and domestic institutions (DII) flows would also hold the key for Indian equities in the year ahead. Capital flows, analysts said, would depend on the US bond yields and strength of the dollar.