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The Indian equity markets were ebullient in 2023, with the combined market capitalisation of all BSE-listed companies hitting Rs 364.3 trillion -- up Rs 82 trillion or 29 per cent during the year. Over the past eight years, the market capitalisation of BSE-listed firms has skyrocketed 243 per cent from Rs 106.2 trillion in 2016.
The Sensex and Nifty50 finished the calendar year with gains of 18.7 per cent and 20 per cent, respectively, marking the eighth consecutive year of advance. This is the first time that the Indian equity benchmarks have seen eight consecutive years of gains. The previous longest winning streak was from 1988 to 1994. The two leading Indian indices have delivered double-digit returns in four of the past five years.
The broader markets shone even brighter with the Nifty Midcap 100 and the Nifty Smallcap 100 gaining 46.6 per cent and 55.6 per cent, respectively.
But the benchmark indices declined on the last trading day of 2023 as investors preferred profit-taking on Friday. The 30-share Sensex fell 170.12 points or 0.23 per cent to settle at 72,240.26; the Nifty50 declined 47.30 points or 0.22 per cent to settle at 21,731.40.
Compared to global peers, India’s returns were middle of the road. Developed markets like the US (S&P500 and Nasdaq), Japan, and Germany outperformed. So did Taiwan and Brazil. But India did better than China, South Korea, Thailand, France, and a host of other markets. The MSCI World index outperformed India marginally and gained 22 per cent; the MSCI Emerging Market index made a meagre gain of 6.95 per cent.
The gains came in a year that saw uncertainty about the rate hike trajectory, spiking bond yields, the Israel-Hamas conflict, and the banking crisis in the US.
But India’s macroeconomic stability, corporate earnings, and the robust inflows both from domestic institutional investors and foreign portfolio investors (FPI) helped the Indian markets end with gains. The US Federal Reserve’s dovish pivot and the Bharatiya Janata Party’s win in three out of five key state Assembly elections gave further boost to the rally.
The next year is likely to be both promising and challenging. “Despite the uncertainties of an election year, India’s macroeconomic fundamentals paint a positive picture. India is one of the few countries today that enjoys a combination of stable macros, a resilient banking sector, and minimal corporate leverage. This makes India a structurally sound market and, consequently, one with rich valuations,” said S Naren, executive director & CIO, ICICI Prudential AMC.
There are also concerns about elevated valuations after the sharp gains. The Nifty50 is trading at a one-year forward price-to-earnings (P/E) ratio of 20.2 against its five-year average of 19.0. The Nifty Midcap 100 is trading at 26.8 against its five-year average of 23.2, and the Nifty Smallcap 100 is at 21.1 against a 16.9 five-year average.
“In terms of market segmentation, no pocket is inherently cheap. However, on a relative basis, largecaps appear to be better positioned. For fresh equity investments, opting for flexi-cap, multi-cap or largecap funds is advisable,” said Naren.
Moreover, election years have been marked by increased market volatility. “Investors need to be careful as we are headed to polls, though no one is expecting negative surprises. There is a lot of frenzy at the moment. One should stay away from unknown companies and cyclical businesses where earnings are not visible,” said Motilal Oswal, managing director and CEO of Motilal Oswal Group.
Realty, public sector enterprises, and automobiles were the best-performing sectors and their sectoral indices on the NSE rose 81 per cent ,80 per cent, and 47.6 per cent, respectively. Tata Motors was the biggest gainer among Nifty50 stocks and rose 101 per cent. Bajaj Auto, which rose 88 per cent, and NTPC, which gained 87 per cent, were the other big gainers. REC rose 254 per cent -- the most among midcap stocks. And, BSE rose the most among the smallcap pack by 307.6 per cent.
