Indian markets outperformed most other markets in 2022 benefitting out of better management of macros including inflation management and corporate earnings that did not disappoint majorly despite challenging times. This meant that India got a larger than proportionate share of FPI funds directed towards emerging markets. Rising trade/fiscal deficit and pressure on Rupee were viewed negatively.
As we enter 2023, India could continue to benefit out of high investment to GDP ratio (at 33% in FY23 versus 30.5% in FY21), higher infra, railway, road and defence spend by government; continued revival in real estate sector, PLI driven investments and supply chains are being consciously decoupled as national security concerns outdo economic efficiency.
On the other hand, worries for India include core inflation remaining entrenched at 6% YoY with most items witnessing no let-up in momentum, pressure on fiscal deficit due to MNREGA spend & subsidies, high Current Account Deficit (4.4% in Sept 2022 quarter - a 9 year high). fiscal deficit in India (Centre and Total) is not likely to come back soon to prudent levels after the Covid breach.
Emerging markets are likely to benefit from a relatively more benign world vs. 2022. However, India's trailing outperformance could take a breather in H1CY23, given relative valuations. That said, India is likely to have better growth than most parts of EM due to a relatively strong macro environment. A range of policy reforms implemented over recent years set the base, while further policy action has empowered people and boosted financial savings, directing flows into equities.
Key developments tracked in 2023 (other than earnings) would be state elections, Union Budget, RBI monetary stance, Trends in trade and fiscal deficit, inflation moves, geo political situation globally, commodity price trends globally, economic growth momentum in the world etc.