Will the stock market recover in 2023?

Buckle up folks, because the rollercoaster ride for India's stock market has taken a nosedive. What started as a promising year with gains of nearly 5% in CY 2022, has turned into a nightmare for investors. In fact, the Indian benchmark indices have earned the dubious distinction of being the worst performers in Asia in the first quarter of CY 2023.

So, what went wrong? It's a combination of factors that have culminated in a perfect storm. Valuations shot up significantly, and causing concern among investors. To make matters worse, interest rates have been persistently hiked, while stubborn inflation continues to rear its ugly head, and weak sentiment prevails due to the value erosion at the Adani Group. Stocks from the Adani Group, which were once a boon for Indian markets, have turned into a bane, triggering a severe sell-off.

It's safe to say that the journey of the Indian stock markets has been one of the most unpleasant in recent memory. The NSE Nifty50 index is currently on track for its fourth straight monthly decline, marking its worst losing streak in more than two decades. Adding insult to injury, slow economic growth amidst rising interest rates across leading countries has fueled fears of a recession. With these dire sentiments, the only question remaining in investors' minds is when the stock market will recover. Is there any chance for a recovery in 2023?" 

The stock market is always a subject of interest and speculation among investors and traders alike. With 2023 on the horizon, the million-dollar question on everyone's minds is, "Will the stock market recover in 2023?" To answer this, we need to examine the key triggers that investors are eagerly anticipating to invest in the market. 

Firstly, the continued economic growth of India, despite global growth weakening or entering a recession in 2023, could provide a glimmer of hope for investors. The Reserve Bank of India has highlighted that the Indian economy is likely to maintain the same pace of expansion witnessed in 2022-23. This is mainly due to its demonstrated resilience and reliance on domestic drivers, making it better positioned than many other parts of the world to face the upcoming economic challenges.

Secondly, easing of geopolitical tensions could prove to be a much-needed relief for the stock market. The impact of Covid-19 on supply chains was further compounded by the war in Ukraine, which resulted in a sharp rise in commodity prices. This led to a supply side disruption that not only fuelled inflation but also dented companies' margins. A resolution of trade tensions could potentially help to soften inflation and boost companies' margins.

Lastly, inflation concerns have been a significant worry for investors worldwide. The stubborn inflation levels have led to central banks raising interest rates at an unprecedented pace, resulting in recession fears. However, investors are hopeful that resolving the supply-side issue could help achieve a soft landing, which is otherwise expected to be a hard landing. Inflation is also expected to cool off in the second half of the year, as the base effect catches up.

Risk looming: The Indian market is standing on the edge of a risky cliff, and one of the most significant threats that it faces is the drying up of domestic liquidity. Over the last couple of years, domestic liquidity has been the backbone of the Indian stock market, with strong flows in mutual funds being backed by domestic institutions. However, a significant shift in the market has occurred with retail participation taking a nosedive, and most funds' performance taking a hit. The resultant effect is that flows in SIPs could see a decline, which could severely impact the inflow of mutual funds. Moreover, with redemption pressure looming, the markets could be at risk of losing significant liquidity, which is essential for market stability.

Here’s what investors should do:

1. Focus on high Quality stocks: Analyzing your risk appetite in probably the most underrated thing while investing. Focus should be on good quality fundamentally strong stocks that have good potential for upcoming years. Depending on the risk profile, investors should perform due diligence to selection of all the segments that they are willing to invest in. 
        

2. Avoid making emotional decisions: It is of utmost importance to remain disciplined and avoid making emotional decisions. It is a wise decision to stick to the long term investment plan and avoid reacting to short term volatility of the market to build an outstanding portfolio.
        

3. Be Informed: Investors should keep a day-to-day update in the investing world and look for key triggers in the market. An informed investors shall be first to act and shall be rewarded the most by the market.

But here's intriguing fact: did you know that history may be on our side? The NSE Nifty50 index is currently on track for its fourth straight monthly decline, and past data suggests that this pattern has led to a bottom and a smart rally in the market. Additionally, relative valuations have become more attractive for Indian stocks, and foreign investors have a very light position in the market, which could lead to an influx of foreign flows and drive the market upward.

CONCLUSION 

So, what's the bottom line? While there are risks and uncertainties associated with investing in the stock market, staying informed and following a disciplined approach can position you for long-term success. Keep up with the latest news and trends, remain focused on high-quality companies, and stay the course. With determination, you can achieve your financial goals and build a secure financial future.