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Learning from 2022 and outlook for 2023

Contributor - Anonymous and Saurabh


What did we learn in 2022?


As we had mentioned in our last year’s note (https://www.socinvest.app/post/learning-from-2021-and-excited-about-2022), the markets were difficult to make money in 2022. We expected that asset owners would be better off than non-asset owners and the record number of real estate deals across the country is an example of this. The runaway inflation led to RBI increasing bank rates and a few more hikes are expected.


Our selected portfolio returned 26% vs. index returns of 4-10% in the corresponding period (https://www.socinvest.app/post/reflections-2022). As we had mentioned about not being adventurous during the year, cryptocurrencies saw a big collapse and for most people, ceased to be the asset class it was touted to be in 2021. Our expectation of better tools than WhatsApp/Telegram groups did not play out as a lot of the promising fintech startups could not survive the funding freeze or get their product market fit and closed down/are closing down. Old habits die hard!


What does Mr. Buffet’s indicator say about current market valuation?


The Buffett Indicator is the ratio of the total stock market valuation to GDP. The current ratio for India is ~103% which is in the modestly overvalued range. Please refer to this article for more details (https://www.gurufocus.com/global-market-valuation.php?country=IND). Key global market like the US is significantly overvalued on this parameter.

Outlook for 2023

We expect the first half of the year to be about “more of the same” as the second half of last year with high volatility, and new highs on the index but big corrections also. Inflation should come down and we would likely see peak interest rates also during the year. The Central Banks across the globe would also most likely move away from inflation targeting to a more accommodative stance as they turn dovish near the end of the year.


From a passive investors’ perspective, safe investments like gold and fixed deposits for the year can give better returns than broad investment products. Active stock pickers and value investors will most likely continue to do well when investing in a disciplined fashion as the markets correct away after peaking out in the early part of the year.


2023 could be a launchpad for the next round of global growth and equities are expected to lead that. So, an investor looking to benefit from the strong rally of the future in equities could start investing consistently in them in the latter half of the next year.


Contributor - Monith


What did I learn in 2022?


2022 was an average year for all market participants, Nifty remained mostly sideways. As predicted previously at the end of 2021 the market might not reward favorably with big gains since 2021 saw stellar returns across sectors and indices. Overall, we saw 39 new IPOs listed in 2022 with average returns of 10% as listing day gains. Stocks that had run to52 week Highs saw consolidation and some of them corrected to the tune of 40% or more. The correction was clearly overdue and it brought some sanity to the valuations. Markets and economies slowly moved out of the pandemic era to a high inflationary zone with central banks all over the world working in tandem to reverse the excess money that flowed into the markets. We saw a series of Repo Rate hikes in a matter of few months and suddenly we went from a low-interest rate regime to high-interest rates. This makes the cost of borrowing funds expensive for everyone in the economy, which lead to underperformance in certain sectors. India has stayed largely unscathed by all these policies of RBI, thanks to the consumption story that is playing out pretty well. Only time will tell if India is going to face a recessionary period in the future.


Outlook for 2023


We have seen the boom and consolidation phases in the preceding years. In 2023, we may see a sizeable correction in the broader markets to allow the next leg of the rally to happen. RBI Governor has hinted that the next financial crisis can happen due to the Cryptocurrencies. In 2022 we already saw some of the major cryptos like Ethereum and Bitcoin correcting by one-third. For retail investors, it would be prudent to keep booking profits wherever they can to maintain a cash position in the current volatile environment. This is also the time when a new set of Investors enter into value stocks post-market correction and wait for the next leg of the rally to start. Value creation, sector rotation, and Govt PLI Schemes all come into the picture in 2023, and investors should keep patience and watch out for key developments in these areas.

 




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