The year 2023 commenced with the Adani-Hindenburg saga which shook the Adani group stocks as the group lost about $100 billion in market value in days. Hindenburg released a detailed report alleging various financial and accounting irregularities at Adani Group companies. The Supreme Court eventually gave a clean chit to Adani. But the damage was already done. The controversy emphasized that stocks cannot keep on going up always. You must manage your risks well.
In March, 3 banks in the US namely Silicon Valley Bank (SVB), Signature Bank and First Republic Bank collapsed due to a run on their deposits caused by higher interest rates and losses on their bond portfolios. The crisis highlighted how interconnected our financial system is, the failure of one bank, even a seemingly small one, can trigger panic and domino effect, potentially leading to a larger crisis. This crisis underscored the necessity for robust regulatory frameworks, stress testing and liquidity regulations to ensure the resilience of the entire banking system.
The latter part of the year witnessed jitters from surging Inflation which impacted the bond yields as they touched record-high levels of 5% since the Global financial crisis of 2007. As the Fed continued its hawkish stance, market expectations regarding future interest rates shifted, with investors anticipating further rate hikes in 2024 and beyond. While the Fed’s December meeting did cool off the bond yields, it served as a stark reminder that assumptions of “it’s different this time” must be approached with great vigilance. These events highlight the indispensable role that macro dynamics play in shaping market outcomes, surpassing the conventional aspects of valuations, earnings growth, and interest rates.
Coming back to the Indian markets, the year saw the rise of the retailers who stood strong amidst the Foreign Institutional Investors (FII) outflows. The retail investors net invested Rs.1.8 lakh crores while the FIIs withdrew 17,029 crores in 2023. Generally, when FIIs withdraw funds, broader indices tend to fall. Notably, this time around, the markets held firm with a 20% gain, showcasing the robust influence of retail investors and their crucial role in sustaining market strength. This development signifies a shift in the dynamics of Indian markets, suggesting a newfound independence from FIIs flows.
2023’s small-cap and mid-cap rally delivered a masterclass in diversifying beyond blue-chips. The retail participation caused remarkable gains in the small-cap and mid-cap stocks as the Nifty Smallcap 100 and the Nifty Midcap 100 rallied 55% and 46% respectively. This exceptional performance of the small-cap and the mid-cap significantly outperformed the benchmark indices. The rally wasn’t confined to a few sectors or stocks, but was broad-based with over 85% of stocks ending on the positive note. The resurgence after a bleak 2022 for these stocks highlighted a fundamental truth: just as the saying goes, “you rise after a fall,” markets possess an inherent ability to rebound, regain and flourish.
All of these developments sent shockwaves, but the Indian markets stood high amid the storm of volatility. These developments serve as a reminder that in investing, volatility is an inescapable companion and the key lies in maintaining patience and remaining invested in quality names for a long term.One of the valuable lessons learned is the importance of timing in making profitable investments. Seizing the right moment, particularly when a stock is trading significantly below its intrinsic value, can be a catalyst for financial success. The art lies in identifying themes poised for growth and weathering short-term uncertainties with composure.
Ultimately, the year’s experiences underscored the timeless wisdom that successful investing involves a combination of resilience, strategic timing, and a discerning focus on long-term value. The market, with its undulating patterns, rewards those who handle its complexities with patience, insight, and an unwavering commitment to enduring principles.
Technical Outlook:
The Nifty50 index concluded the year on a triumphant note, delivering an impressive 20% return. A confluence of positive factors fueled a remarkable rally with foreign capital inflows drove the indices to unprecedented record highs.
On the monthly chart, the Nifty50 retains its primary strength forming strong bullish candles. The market’s breadth has been consistently strengthening over the past two months, enabling mid-and small-cap stocks to steadily reach new highs.
A closer look at the weekly charts reveals a strong support base at 21,200. Notably, the weekly Relative Strength Index (RSI) stood above 75 which further signals substantial strength. Any minor pullback, possibly near to 21,400-21,500 range would be considered as a healthy correction for the next rally toward 22,000 levels.
The month of January is expected to be volatile, especially leading up to the financial budget in the next month. All eyes are on the 22,000 levels with key events anticipated to sustain the Nifty buoyancy.
All of the major sectors are currently hovering near their all-time highs and the prevailing momentum is expected to persist in the coming weeks. However, for Nifty to remain at all-time high and for stocks to replicate a similar stellar performance may prove challenging.
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