Why Indian stocks are under performing in 2023

After a rock solid 2022, the calendar year 2023 has not started on a positive note for the Indian markets. As can be seen from the below graph the Indian equities outperformed the major global indices last year but its performance in the current calendar year has been rather disappointing.

Most Global Central Banks in their latest meeting have slowed down the pace of their rate hike, a maximum of 25 bps increase has been witnessed except for a few European countries. India & USA both slowed its repo rate hike to 25 bps from 50 bps in the previous meeting.

The global central banks slowed its rate hikes as they anticipated the slowdown in inflation to continue. However, the latest January Inflation print came in as a shocker. India’s CPI inflation stood at 6.52% in January 2023 from 5.72% in December 2022, this acceleration was primarily due to a high food inflation. On the other hand, the USA CPI inflation stood at 6.4% in January 2023 from 6.5% in December 2022, although the USA inflation cooled down but the pace of slowdown is not encouraging. These inflation prints point out that core inflation in both the USA and India still remains high and sticky. The markets are thus absorbing the fact that the Fed and RBI could remain hawkish for longer than they previously expected. The Bond market too is in action with the Indian 10-year bond yields touching the 7.4% levels highest since November 2021, causing more pressure on equities.

In the month of February, the FIIs outflow stood at INR 11,091 crore. There are several factors which are keeping the FIIs cautionary. The outperformance of Indian equities over its peers in 2022 making it relatively expensive, the year of multiple state elections followed by Central elections in 2024 and the re-opening of China resulting in migration of funds.

Apart from the global and economic factors the Oct-Nov-Dec 2023 quarterly performance of the domestic companies have been a tad underwhelming. 13 of the Nifty 50 companies delivered a negative net profit growth and 3 posted neutral growth.

Q3 GDP data has recently been announced and there is a clear indication of a significant slowdown in private consumption. The inflationary pressure and the global spillovers on Indian exports are major headwinds for the country’s growth in the short term.

The above-mentioned factors have kept the Indian Equity markets under pressure and could be a reason for a sustained underperformance going forward in the calendar year 2023.

On a brighter side, in the last three months, the Nifty 50 Index has fallen by 5%. This fall makes it the 11th time since 2002 that the benchmark has fallen for three consecutive months. The interesting data point from these falls is that on all the previous ten occurrences the market bounced back and delivered a positive return in the next month. This makes an interesting case for an optimistic end to the month of March.

It was another volatile week for the market as prices were indicating a mixed reaction and were hovering near the 17,300 – 17,400 range. In Friday's session, index finally rebounded from the PRZ zone of the Bullish ABCD Harmonic pattern which was formed at 17,255 levels and witnessed a strong rally and closed at 17,594.30 with a weekly gain of 0.74%.

For the past 5 weeks, the prices are hovering marginally above their 50-week EMA which is placed at 17,458 levels on the weekly scale. Index has also formed a Hammer like candlestick pattern where prices have shown strength from the lower levels and have formed a tail at the low and upper body closed near the high. The momentum oscillator RSI (14) on the daily chart has formed a triple bottom pattern at around 30 levels but is facing an overhead resistance at 55 levels. Technically, Friday’s bullish candle has shown optimism amongst the traders but the index needs to cross 17,800 levels on the higher side for a shift in the momentum. On the lower side, 17,350 and 17,250 will act as an anchor point for the index.