Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities closed higher for second consecutive day, with Nifty gaining 0.2% while broader markets out-performed the main indices as Nifty Mid Cap and Nifty Small Cap were up 0.23% and 0.27% respectively. Most of the sectoral indices ended in green except Nifty Media (-0.7%), Nifty Metal (-0.5%) and Nifty Auto (-0.4%). The IT and Nifty Pharma were the major gainers which were up 0.78% and 0.72% respectively. The Indian economy and exports are likely to moderate in 2023 due to weak global demand and recession in large economies.
U.S. equities were shut in observance of New Year holiday. Last Friday, U.S. equities closed lower to finish off the worst year for the U.S. equity market since the financial crisis. The S&P 500 and Dow Jones closed 0.2% lower, while the Nasdaq fell 0.1%. With Friday's losses, the S&P 500 fell 19.4% in 2022, its largest calendar-year decline since a 38% drop in 2008. The Nasdaq Composite dropped 33% and stands at the same level as July 2020. The Dow, meanwhile, fell a comparably modest 9% in 2022, while the bond market suffered through its worst year in modern history.
The uncertainty of the impact of recession in 2023 lingers. The Central banks across the globe are warning about a prolonged inflation fight while Russia-Ukraine war and COVID cases in China threaten to keep energy and raw material prices high. Profitability expected to improve in 3QFY23 after earnings in 2QFY23 witnessed margin pressure. Going into 2023, we expect a slower increase in interest rates, while the overall interest rate would remain benign compared to the historical average, which would lead to lower returns from the fixed income asset class, motivating markets to continue preferring equities over other asset classes.