India’s benchmark indices suffered their biggest monthly losses in December – worst since 1994 – battered by a host of global headwinds like a resurgent Covid crisis, fears of further tightening of rates by central banks around the world, and a looming recession.

The Sensex and the Nifty lost around 2,760 points and 810 points, or 4.37 percent and 4.32 percent, respectively, during the month so far. In 1994, both the indices fell around 4.8 percent and 5.1 percent.

The flagship indices saw negative returns in December last time in 2018. In 2021, they jumped around 2.1 percent each, while in 2020, there was an over 8 percent surge.

The fall in the Indian equity markets after the recent US economic data continued to display robust strength with the third-quarter US GDP growth coming at 3.2 percent. Elevated core inflation in the US may result in higher rates despite the recent decline in inflation. The recent spike in Covid cases in China and Japan and surprise shift in Japan’s monetary policy added another variable to global volatility.

The Indian markets remained a top performer among global equities but the road ahead unlikely to be same with most analysts hoping that the Indian equities are likely to be bumpy in 2023.

“We expect further consolidation in the Indian markets over the next few months as it fully digests the negatives of rich valuations, higher-for-longer interest rates and growth headwinds. We see higher-for longer interest rates and slow recovery in consumption of low-income households as the key themes for the economy and related de-rating in multiples of ‘growth’ stocks from higher-for-longer interest rates as the key theme for the market for 1HCY23,” said Kotak Institutional Equities in its recent report.

Global equities seen a volatile phase through 2022 with Russia-Ukraine war, disruption in commodity prices and lockdowns in China.

The brokerage expects the RBI to hike the policy rates further and will hold the peak policy rates at 6.25-6.5 percent as inflation is unlikely to improve. Kotak expect consumer price inflation to remain at 5 percent for most of 2024 and the core inflation to be closer to 6 percent.

According to Credit Suisse, foreign investors would continue to sell off local equities in 2023. “India’s weight in emerging market funds remains intact despite the selling. With global markets focusing on growth risks again, emerging markets and Asia Pacific funds could see more outflows in 2023,” the brokerage said.

Brokerage firm Nomura Research expects a flattish market return through 2023 on the back of earnings risks and elevated market valuations.

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