A trader works at a stockbroker in the western Indian city of Ahmedabad. File/Reuters
The year had a lot to offer and in the end the financial markets were not exactly flying. Indian benchmark indices continued their good performance and increased for the seventh year in a row. The last time they ended the year in losses was in 2015, when they closed about 4.25 percent lower. This year they increased by 4.4 percent.
The year started on February 24 with what people thought was going to be a skirmish between Ukraine and Russia. It’s almost 11 months now and it doesn’t seem to end. This war brought many disruptions as Ukraine is the world’s largest supplier of wheat and grains to many countries. It cut off oil supplies and sanctions against Russia, and its retaliation left Europe grappling with the onset of winter when it comes to oil and gas.
In 2022, inflation hit the global economy and central banks around the world, be it the US Fed, the ECB, the Bank of England and even the RBI, who hiked rates with the intention of curbing ever-rising inflation. The US Federal Reserve raised interest rates four times in a row by 75 basis points each, along with three other hikes totaling 100 basis points. The current interest rate spread in the US is between 4.25 and 4.5 percent.
This is the highest rate in a very long time, rising from a range of 0% to 0.25% a year ago. Interest rates have risen in India, but significantly less than in the US. The repo rate is currently 6.25 percent, down from 4 percent until April 22nd. The increase was 225 basis points in eight months versus 425 basis points in the US in 12 months.
After the aggression against Ukraine, markets fell in March and then recovered. When things seemed to be going nowhere, they fell again, forming lows in June. The BSE Sensex bottomed out on June 17 at 50,921 points while the NIFTY bottomed out at 15,183 points. From there, markets in India hit new all-time highs on December 1st, both on an intraday and closing basis. BSE Sensex’s intraday high was 63,583.07 while on a closing basis it was 63,284.19 points.
On the Nifty, the intraday high for the same day was 18,887.60 points, while on a closing basis it was 18,812.50. This year, BSE Sensex is up 4.44 percent, while NIFTY is up 4.33 percent. Bank Nifty was the driving force in our markets, gaining 21.15 percent. The revival of public banks was the theme of the revitalization of the banking sector.
Expect OFS from the government in 2023 as its holdings in nearly all public sector banks have surpassed 75 percent. They could give up part of their stake and reap money. The policy of injecting capital to recapitalize banks has certainly paid off and the case study on this would make interesting reading in the future.
Dow Jones was unable to generate any returns this year. She failed to do so in 2018. Dow Jones has been under pressure and quite volatile. There are fears that the observed high inflation could ensure that interest rates remain at a high level for an extended period of time.
Some more rate hikes are already expected in 2023, and 2024 could see stability and maybe some rate cuts. Fear of recession and stagflation is also there, although no one wants to say so. Dow Jones closed down 9.43 percent. That’s not too bad compared to the Nasdaq, which was down a whopping 33.10 percent. What’s really surprising is the fact that the Nasdaq is barely 3 percent above its low for the year. Incidentally, this was made the day before on December 29 at 10,088 points.
A single issue that worries me about Nasdaq-listed companies is Apple, a consumer company. Apple shares are down more than 26 percent over the past year and are trading at practically their 52-week low. The stock closed at $129.93. If this is the state of a consumer business, heaven help technology-based businesses.
Let’s take a closer look at the Indian markets. The primary market, or IPOs as they are popularly known, saw far fewer offerings in 2022 compared to 2021. Most notably missing were the new-age companies that seemed to dominate the market in 2021. Names like Paytm, Nykaa, Policybazaar, Car trade and Delhivery were missing.
Markets have probably become familiar with the phrase “path to profitability” that management at these companies have been accused of, and no one seemed to get any wiser. It is likely that Covid was what gave these issues their ridiculous valuation and drove the sale of their IPOs. The last nine issues to hit the markets are all trading at prices below their issue price.
Surprisingly, eight of them closed themselves below the issue price on the first day, while the ninth managed to trade higher for the first two days before slipping.
One can be sure that the way investors got trapped, company founders would find it difficult as new companies enter the capital markets.
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