India Keeps its Foot on the Pedal

December 2022 certainly did not turn out to be a charming one for investors. Nifty 50 has been underperforming the global equity market and has remained the second worst performing equity index after Japanese Nikkei 225 for the period beginning December 2022. Nonetheless, if we extend the period of our observation and start this comparison from January 1, 2022, we find that Nifty is still outperforming the major equity markets globally. Hence, the current underperformance and fall in our market should be looked on as return of the Indian equity market to its mean. 

Moreover, I see most of the pain has subsided and there is limited downside from here. The long-term fundamental of the Indian market has never been so good. Despite being available at premium valuations to other emerging markets, the strong economic growth, firm December ending Quarterly Results and a high visibility into monetary and fiscal policies easily justifies the premium. From a longer term perspective, India is at an inflection point with per capita GDP at USD 2,300. Historically, we have seen that when emerging economies’ per capita GDP normally reaches this level, there is an explosion of demand for consumer goods and services, ranging from household appliances to mortgage loans. 

Therefore, we may see the accelerated economic growth of India continuing in the coming days. The current weakness in the Indian equity market is in fact presenting another opportunity to investors who missed the bus earlier. Besides, there is another factor that makes me optimistic about the equity market globally. A recent fund manager survey by Bank of America shows that fund managers are overweight on bonds against equity. The last two times they were so confident on bonds against equity was in March 2009 and May 2020. History shows that investing in this period has given exceptional returns to equity investors.

Aptly therefore, the cover story in this issue talks about the risks and uncertainty faced in the current market situation while highlighting various ways to identify a market bottom. While price volume action helps to identify market bottoms, it is important to study various other aspects such as fund flows and investors’ psychology to pre-empt a market bottom. Hope the educative approach taken in the story provides the needed insight on market direction. In our special story we have deliberated on factor investing. There are several merits of adopting factor investing and it can be one of the better ways to outperform the markets. In my opinion, any investor who has a long-term approach towards investing should not miss out on considering ‘factor investing’ as an option.

RAJESH V PADODE
Managing Director & Editor