Bulls & Bears - India Valuation Handbook; Top Picks For Large, Mid And SmallCap Stocks: Motilal Oswal

Motilal Oswal Report

The Nifty’s two-month winning streak ended in December 2022. The index saw extreme volatility and oscillated within a range of ~1,113 points before closing 653 points, or 3.5% month-on-month, lower at 18,105. Nifty was up 4% in CY22. Over the last 12 months, largecaps/ midcaps have risen 4% each, while smallcaps have declined 14%. During the last five years, midcaps/smallcaps have underperformed largecaps by 23%/65%, respectively.

Domestic institutional investor inflows versus foreign institutional investor outflows: DII flows into equities in CY22 were the highest ever at $32.2 billion versus inflows of $12.1 billion in CY21. With just one year of outflows since CY16, DIIs have invested $80.5 billion cumulatively over the last seven years.

Conversely, FIIs witnessed equity outflows of $17 billion after three consecutive years of inflows. During the last seven years, FIIs have invested $30.4 billion cumulatively in the Indian market, with only two years of outflows.

Markets in CY22 have been highly volatile and jittery fueled by a multitude of global and domestic macro headwinds. However, despite these challenges, the Indian markets have shown remarkable resilience and outperformed the global markets significantly.

Positive triggers:

Deceleration in the pace of inflation and any resolution in the Russia-Ukraine conflict can provide a relief, thus allaying the pressure on central banks to raise rates further.

Negative triggers:

India’s economic growth is likely to moderate in H2 FY23 – the Reserve Bank of India is projecting a gross domestic product growth of 4.3%. This may have an adverse implication on demand and in-turn, the corporate earnings. Notably over the last three years, strong corporate earnings trend has been the most important driver of India’s outperformance.

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