Journey of BSE Sensex in 2022

"Stop Trying to Calm the Storm. Calm Yourself: The Storm Will Pass."  is popular saying which tells us that one can’t stop the storm. Instead, one needs to stay calm and let the storm pass away.

Similar was the scenario for Indian equities in the year 2022. Several global headwinds from the beginning till the end of the year jolted markets and investors sentiments. (See chart 1) But still the indices ended the year on a positive note thanks to resilience of the domestic economy, stable corporate earnings and participation of retail and domestic institutional investors (DIIs).  

Some key highlights of the year were:  BSE Sensex – Indian equity benchmark rose 4.4% in 2022 and scaled record high of 63,284 on December 1, 2022. PSU Banks, Banking, metal and FMCG were the top sectoral gainers of 2022. The index ended in green for the seventh year in a row (See chart 2) and the month of August, July, October and November highest number of positive business days. Conversely, maximum number of negative business days were seen in May, June and December as seen in Chart 3.  Sensex was also one of the best performing along with Brazil’s Bovespa among global indices analysed (See chart 4) Despite bouts of extreme volatility, domestic investors became richer by more than Rs 16.38 lakh crore in 2022 albeit significantly lower than the Rs 78 lakh crore wealth investors had made during 2021.

Chart 1

Chart 2

Chart 3

Chart 4

Key factors (positive and negative) that governed the BSE Sensex in 2022

BSE Sensex started the year 2022 on a disappointing note. Rising covid cases including threat of Omicron variant, fears of interest rate hike by the US Federal Reserve and geopolitical tensions pulled down the index in January 2022. Index downtrend continued in February 2022 after Russia declared war against Ukraine and rising worries about spike in the crude oil prices. Sporadic gains were seen Feb post announcement of the Union Budget. The index snapped two months fall in March 2022 due to inflows from DIIs and central government winning state elections in 4 out of 5 states. But gains were short lived as US Federal Reserve hiked the interest rate for the first time since December 2018 in March 2022. Elevated inflation pressure back home with retail inflation rising 6.95% in March 2022 coupled with global growth concerns also dented sentiments in April 2022.  Markets fell more sharply in May 2022 after the Reserve Bank of India (RBI) unexpectedly hiked the repo rate by 40 basis points to 4.4%. Note during the entire year RBI increased interest rates five times while US central bank hiked rates seven times. Persistent selling by the foreign institutional investors (FIIs) also weighed on the benchmark. FIIs were net sellers of equities for the first time in four years in 2022 with selling worth Rs 2.78 lakh crore as per data on leading financial website.

The index fell for the third month in a row in June 2022 after RBI hiked the policy repo rate 50 basis point to 4.9%. There was nervousness about soaring inflation, aggressive monetary policy tightening by global central banks and supply chain disruptions.  

Sensex rebounded in July 2022 (highest monthly gain of 9%) with encouraging domestic corporate earnings, easing of global crude oil prices vis-à-vis highs in May and foreign inflows. Positive momentum continued in August 2022 with domestic manufacturing activity rising at faster pace and softening of inflation raising hopes of smaller interest rate hikes by the global central banks. Gains were short lived as index declined in September 2022 due to weaker-than-expected domestic growth and core sector numbers, volatility in the domestic currency unit – Rupee, Europe’s energy crisis and global economic slowdown worries.   

Index however recovered in October 2022 with rise of 7% after RBI despite rate hike acknowledged that Indian economy was resilient and is expected to expand further with domestic demand accelerating, robust credit growth, rising GST collections and strong balance sheet of companies. Sensex remained in positive terrain after India’s retail inflation eased to 6.77% in Oct-21 from its five-month high of 7.41% in Sep-21 and US Fed policy minutes hinted about slower pace of rate hikes going forward. Sensex ended the month of December 2022 on lackluster note owing to renewed covid fears including rising cases in China, Japan. Prediction of modest slowdown or a recession in the US economy and other developed economies in 2023 and likelihood of more rate hikes by US Fed also dented the sentiments in the last month of 2022.    

Analysis of the top positive and negative business days shows positive momentum was seen in the months of July, August, October and November 2022 as evident in the heatmap 1. On the flipside, higher count of negative percentage change was seen in the months of February, May, June and December 2022 (See heatmap 2) The volatility or market swings were highest the months of February and May as seen in Chart 5 and 6 as these two months had maximum mix of top 10 positive and negative days. These swings were more due to announcement of the Union Budget (Feb) and RBI Monetary policy (May).

Heatmap 1

Heatmap 2

Chart 5

Chart 6

Way ahead….

Volatility is the inherent aspect of the equities. Despite volatility, BSE Sensex still managed to end the year 2022 on a positive note. In 2023, domestic equities are likely to get influenced by several global cues including recession fears, liquidity tightening, geopolitical tensions and recurrence of COVID-19 scare. In addition, policy action by RBI, trend of rupee-dollar, global crude oil prices along with roadmap laid down in the upcoming budget is likely to have influence the market in coming months.

Retail and domestic institutional investors (DIIs) support to the domestic equities will be vital in 2023. The net inflows by DIIs stood at Rs 2.75 lakh crore as per data displayed on leading financial website. DIIs comprised of mutual funds and insurance companies who are witnessing rising flow of retail money given their growing interest in financial assets. This was evident from fact that investments in mutual funds through systematic investment plans (SIPs) touched an all-time high of Rs 13,307 crore in November 2022. Interestingly, the total number of demat account crossed the 10-crore mark in 2022. We hope the momentum remains strong in 2023 as well.

Investors should not allow short term performance impact the long-term wealth creation process. To navigate through the market storm, investors need to stay calm, invested and focused on their goals. Just take a note of market trends, don’t react or undertake any hasty investment decisions.

Happy Investing in the New year 2023!!