2023 is not going as we expected! We expected Indian markets to dominate this year and the global markets to struggle, but as luck would have it, Indian markets have struggled to perform while US and European markets have flourished.

Technology sector stocks have had a revival despite muted earnings, and the banking sector stocks have struggled despite great earnings.

New trends are taking shape in the market. Let us look at some data and find out.

Global Markets

Indian markets, in dollar terms, have been a huge laggard compared to the global markets. MSCI India is down 5% this year, while the S&P 500 is up almost 7%. The worst-performing markets of last year, Europe and Emerging markets are both recovering, with FTSE being up 5% and MSCI EM up 3.5%

While the ongoing Adani saga might be one of the reasons investors are staying away from India, the overvaluation of Indian markets over global peers could also be one of the reasons why we see a correction.

The domestic investors who have become a strong party in the markets have also seen some decline, with direct equity participation by retail investors almost at a pre-pandemic level. At the same time, the mutual funds and SIP flow remain robust.

Sector Performance

The price trends among the sectors tell us that Technology, Metals, and Energy see a comeback along with Autos. Now, what do these sectors have in common? First, these sectors have their businesses tightly linked to the global markets. US market revival is boosting the technology sector while the Chinese recovery is aiding metals.

Consumer Discretionary, Consumer staples, and Banks remain laggards. This trend is a value-based correction. Consumer and banking stocks saw big rallies in the past few months and are now correcting. The utility sector shows a significant modification as many Adani stocks fall in that sector.

Overall the actors favoured by the budget do not have a discernable trend, but the sectors linked to the global economy are getting stronger.

Industries

Looking at the large and mid-cap industries, we see that computer software, electric equipment, steel and finance are the leaders. The explanation for the growth of the computer and steel sector is linked to the global economy, while electric equipment manufacturers are forming an organic trend.

Power generation and gas distribution could be better as they include Adani stocks. Public sector banks also show big corrections after the dream run last year.

If we look at small caps, the best-performing industries are plastic goods, cables, electric equipment and steel. The worst-performing sectors among smallcase are food and dairy, dyes, hotels, fertilisers and pesticides. The movement among small caps might have more stock-specific action.

Factors (Value vs Momentum)

Just like in 2022, even in 2023, Value is leading Momentum. As the interest rate regime remains tight and liquidity shrinks, investors are looking for value buys and shunning the overvalued stocks. This has led to the revival of the Value stocks, which is expected to continue for some time.

Being a bearish and sideways market, investors favour dividend-yielding stocks and stocks with high growth. The Alpha factor has seen correction due to the Adani stocks, and Momentum is also lagging the broader markets.

Earnings

Lastly, regarding the earnings season, which just concluded, Insurance, Paper, Hospitality, Electricals and Autos posted the best YOY earnings growth numbers. On the other hand, industrials, Textiles, Metals and Media posted the worst numbers.

Overall the earnings were not the most encouraging this quarter. We saw gross sales of the market remain stagnant while the gross profit declined by 10%. Nevertheless, the IT companies remained cautiously optimistic while banking and financials posted good numbers. But the market trends seem to be going in the opposite directions, maybe hinting at a bottom for IT and a top for banking earnings growth.

Overall several exciting trends are forming, and patterns are shifting. We will watch and act as the market directions change.

Where to invest in this market?

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