Reflecting on the Year End & Answering What Comes Next
with Arvind Kothari, Founder of Niveshaay

FY 2023 was a tough year in Indian Equity Markets, following two very good years

The global market was influenced by several factors, including the persistent conflict between Russia and Ukraine, the high energy prices in Europe, and a substantial increase in interest rates in the US, rising from 0-1% to 4.5-5% within a year. Moreover, elevated freight costs also added to the concerns. However, during the latter half of the year, freight costs, metal and energy prices decreased considerably from their peak levels.

Usually, February-March is that time of the year when markets remain volatile because of financial year end tax planning and investment by investors in tax-exempt funds resulting in reduced money inflow into markets.

Adani and SVB case have led to further increase in volatility. Indian banks’ asset-liabilities are quite matched compared to the skewness seen in the US banks where hike in interest rate was massive in just a time period of one year. Further, Indian banks’ balance sheet is quite clean.

It is commonly observed that market returns are generally inversely co-related to the frenzy and excitement of investors

However counter intuitive it may sound, the pandemic induced WFH scenario generated a lot of interest in the markets, with a large number of first time investors reaping significant returns in those two years. This further increased their participation and enthusiasm in the market. But the party started to wither last year and now with these low returns, there seems to be complete lack of interest, with investors want to move away from equities to real estate and fixed income products. This behaviour has typically been observed many times in the past. Take case in point, the grinding bear market of 2018-19 where investors completely lost interest and pre-dominantly exited from small and midcaps. However, we witnessed that the biggest bull markets came post that period and this is a well-established trend in the markets.

In last 500 days, both the BSE Small Cap and NIFTY 50 indices experienced negative returns of -4.92% and -4.63%, respectively, indicating a challenging period of 1.5 years for the market, with a significant number of fund managers underperforming

Paradoxically, this is the period when investor interest tends to decline, despite it being a potentially opportune time to make prudent investments in the markets. Like any other businesses, investing also require discipline and it is important not to make any decisions based on short term which may cost you in long run. Instead of speculating and making impulsive market decisions, its highly recommended to make the most of this volatility as it presents an opportune time to invest in markets wisely given that there are quite a few positive triggers that can lead to good expected returns.
Fundamentally, India is at a very good stage where banks and companies have healthy balance sheet while the government has implemented effective policies to stimulate the capex cycle and advance infrastructure and energy transition. Additionally, private capex has surged, leading to strong order books for capital goods companies. As a result, this sector has outperformed in the current fiscal year.

At Niveshaay, we are pleased and thankful that investing in these burgeoning sectors has contributed to our outperformance compared to the index.

The Way Head with Niveshaay

Technical analysis suggests that the market indices have remained relatively stagnant over the past 18 months, indicating a high probability of an upward move in the near future. This pattern has been observed in previous market cycles too.

Our investment approach is grounded in research, which involves analysing companies’ business models, consulting with various entrepreneurs, and attending trade shows to stay abreast of business trends. This method has yielded outstanding results, and it instils confidence during market downturns because we have an understanding of where we are investing and our decisions are based on careful assessments of probabilities.
Whenever, there is correction in markets, there is emergence of new sectors gaining leadership in markets leading to out-performance. Last year, capital goods and green energy were two such sectors that gained prominence and delivered good returns.

Our investment portfolio primarily focuses on high-growth sectors that have significant potential for future growth and expected to perform well, such as Make in India, Recycling Trends, Energy Transition, and Defence, among others. The India advantage is favourable factors of production, including low metal costs, resulting in production of capital goods at competitive rates. Q3 FY23 results also guided a healthy growth outlook in capital goods and infrastructure companies.
It’s worth considering to invest a lumpsum amount in these emerging sectors and take utmost advantage of this volatility as it has been observed that in the past whenever investments have been made during such times has yielded great returns. Some companies are available at attractive valuations, making them good investment opportunities.

Niveshaay is a SEBI Registered (SEBI Registration No. INA000017541) Investment Adviser Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.