Indian indices continued to gain for the seventh year in a row

The year had plenty for it and at the end of it all, financial markets were not necessarily flying. Indian benchmark indices continued their good showing and managed to gain for the seventh year in a row. The last time they ended the year with losses was in 2015 when they closed lower by about 4.25 per cent. This year they gained about 4.4 per cent.

The year began with what people thought would be a skirmish between Ukraine and Russia on February 24. It is getting close to 11 months now, and there seems no end to the same. This war saw disruptions of many kinds as Ukraine is the world’s largest supplier of wheat and food grains to many countries. It disrupted oil supply and sanctions on Russia and its retaliation saw Europe struggling with winter having set in as far as oil and gas is concerned.

2022 saw inflation hit the world economies and Central banks around the world whether it be the US FED, ECB, Bank of England and even RBI raise rates with one intent, to curb the ever-increasing inflation. US FED raised interest rates on four consecutive occasions of 75 basis points each besides three more hikes of 100 basis points total. The current rate band in the US is 4.25-4.5 per cent.

This is the highest rate in a very long time and has gone up from a band of 0-0.25 per cent a year ago. In India, rates have gone up but significantly less than what has happened in the US. The repo rate is 6.25 per cent currently, against 4 per cent until April 22. The rise has been 225 basis points in eight months against 425 basis points hike in the US in 12 months.

Markets post the Ukraine aggression fell in March and then recovered. When things appeared to be going nowhere, they fell again and made lows in June. The low on the BSE Sensex was 50,921 points on June 17, while it was 15,183 on NIFTY. From there markets in India made a new lifetime high on December 1, on both intraday and closing basis. The intraday high on BSE Sensex was 63,583.07 while on a closing basis was 63,284.19 points.

On the Nifty, the intraday high on the same day was at 18,887.60 points while on a closing basis was at 18,812.50. The year saw BSE Sensex gain 4.44 per cent while NIFTY gained 4.33 per cent. Bank Nifty was the driving strength to our markets and gained 21.15 per cent. The resurrection of the public sector banks was the theme of the revival in the banking sector.

In 2023, expect OFS from the government as their holdings in almost all the public sector banks has crossed 75 per cent. They would be able to offload a part of their stake and reap money. The policy of infusing capital to recapitalise the banks has certainly paid rich dividends and the case study on this would make interesting reading in time to come.

Dow Jones failed to generate returns in the current year. It failed to do so in 2018 as well. Dow Jones has been under pressure and quite volatile. There is a lurking fear that the high inflation being witnessed could ensure that interest rates remain at elevated levels for a longer period of time.

Already there are some more rate hikes expected in 2023 and there could be stability and maybe some rate cuts in 2024. The fear of recession and stagflation is also there while no one wants to say so. Dow Jones closed with losses of 9.43 per cent. This is not so bad when compared with Nasdaq which lost a whopping 33.10 per cent. What is really surprising is the fact that Nasdaq is barely 3 per cent higher than the low of the year. Incidentally, this was made one day earlier on December 29 at 10,088 points.

A single point which makes me worried about the companies listed on Nasdaq is that of Apple which is a consumer company. Apple shares have lost over 26 per cent in the last year and are trading virtually at their 52-week low. The share closed at $129.93. If this is the condition of a consumer company, heaven help about technology based companies.

Let us look more closely at Indian markets. The primary market or IPOs as they are popularly known as, saw much fewer offerings in 2022 as compared to 2021. Prominently, the new age companies which seemed to dominate the market place in 2021 were missing. The likes of Paytm, Nykaa, Policybazaar, Car trade and Delhivery were missing.

Probably the markets have got wiser to the term, “Path to Profitability”, which was put forward to the management of these companies and no one seemed to get wiser. Probably covid was what got these issues their ridiculous valuation and saw their IPOs sale through. The last nine issues to tap the markets are all trading at prices lower than their issue price.

More surprisingly, eight of them closed below the issue price on day one itself while the ninth one managed to trade higher on the first two day before slipping.

One can be sure that the way investors have been trapped, the promoters of companies would find the going tough when new companies tap the capital markets.