Sensex the Best Performing Index in 2022. Will the magic sustain in 2023?

For the calendar year 2022, the BSE Sensex was among the best performing indices among the 24 large economies in the world. Ironically, out of these 24 markets, only 4 markets gave decisively positive returns, which included India, Brazil, Indonesia and Singapore in that order. A total of 17 markets gave negative returns with the UK markets giving just about flat returns for the full year 2022.

Data Source: Bloomberg

Clearly, India has not only been the fastest growing large economy but the Indian indices have also been the best performing in the world.

Key takeaways from the return rankings of global indices

Here are some key takeaways from the return numbers for the calendar year 2022.

1. Let us start with the laggards first. There is little surprise in Russia being among the worst performing markets. The rouble has plummeted and the embargo has almost made it impossible for Russia to trade with other countries. Their oil supplies to India and China is happening at steep discounts.
    

2. NASDAQ was the first worst performing market for the year. Tech stocks took it on their partially due to concerns over demand and partially because most of them had rallied like there was no tomorrow. For the tech stocks, the year 2022 was like a rude return to reality.
    

3. Among other laggard performers were South Korea, Taiwan, Switzerland and China. Taiwan in a sense is an extension of China and the COVID lockdowns rubbed off on Taiwan also. Also, with China making aggressive noises along the Taiwan borders, the Taiwanese markets had to contend with geopolitical risk too. Among other laggards, Switzerland was hit badly by the Credit Suisse crisis and the spill over impact on other financial stocks.
    

4. India was actually a misfit in the top-3 countries by returns. Brazil and Indonesia are understandable in the list as they are purely commodity driven economies. These countries get a lot of traction from rising commodity prices and they have been big beneficiaries in the last one year. However, India hardly has any worthwhile commodity exports and the performance purely came on the back of the promise that India could still emerge as the fastest growing large economy in the next 2 years.

Can India sustain the magic in 2023?

What that is not hard to fathom, there could be more serious contenders for the top performing economies in 2023. There are serious concerns on the India rally, and here is why.

• It cannot be denied that Adani firms accounted for a chunk of the value appreciation and the story could have been very different had it not been for this group. Also, much of the rally came from the banks, especially the PSU banks followed by the private banks. However, experts feel that much of the rally is factored in and there is not much steam left.
   

• IPO markets have been disappointing in 2022 and unless that recovers in 2023, FPI flows could still be elusive. That would make it impossible for the Indian markets to replay the sort of performance they showed in 2022.
   

• One must not forget that two of the most promising export driven sectors are facing challenges. IT has a challenge of rising costs in India and weakening demand and pricing in the global markets. On the other hand, the Indian pharma industry is being hit badly by the sharply higher competition in the generics sector. These remain short term challenges.

For now, the year 2023 has just begun. However, to repeat the performance of 2022 would call for addressing some immediate challenges as outlined above.