We started the year fearful and anxious. Goldman Sachs’ strategy group sent out a warning to its clients, regarding the economic outlook:  “Caution: Heavy Fog.” January 2023 began ominously, with rising energy prices, high inflation, a global growth slowdown, a war of words between US and China, and recession fears.

Luckily for us, the pessimists lost this round.

We end the year with two ongoing wars, Russia-Ukraine and Israel-Gaza. But despite this, the fears of 2023 turned out to be more manageable than expected. Volatility fell, and most major global indices delivered high returns over the year. Japan's Nikkei 225 hit a 33-year high, and the US' S&P 500 is just 1% shy of its all-time high of 4,796 points. Even the broader MSCI World Index has given 21% returns year to date.   

The Indian stock market has mirrored this global trend, with the benchmark Nifty 50 delivering around 20% returns over the year and reaching an all-time high of 21,779.

In this week’s Analyticks:

• Global indices soar: Major markets make big gains in 2023
• Screener: Stocks outperforming Nifty 50, with rising FII holdings and strong financials 

Let’s get into it.

Inflation soared, but markets made a big comeback

Inflation peaked at the start of 2023, and central banks scrambled to pin it down with interest rate hikes. The US started the year with an inflation rate of  6.4%, way over the Federal Reserve's target of below 2%. Despite the Fed raising interest rates to a 22-year high, US inflation was stubborn for most of the year, thanks to rising energy prices and a hot job market.

The Fed's rate hikes claimed victims early in 2023 –  regional banks like Silicon Valley Bank and First Republic Bank toppled. Higher rates also resulted in ballooning debt for economies like Argentina, leading to the Argentinian peso’s collapse against the US dollar and  hyperinflation, with 161% inflation in November 2023.

Inflation in Argentina rose so fast that restaurant menus and shops used peel-off stickers for prices, since they went up every week.

China was an inflation outlier. Its economy failed to take off post-COVID, resulting in low demand and inflation. China’s inflation even hit the negative zone at -0.5% in November, a deviation from its historical range of  1.5% to 2.5%.

India has been trying to balance its interest rate and inflation. While RBI kept inflation in the targeted range of 4%-6%, it held the interest rate at 6.5%. The RBI has made a hike of just 250 bps since April 2023, compared to a 450 bps increase in the US.

Most of the gains for major indices came in the last quarter of 2023, as inflation tapered down and global central banks finally signaled a pause in rate hikes.

AI gives US indices a boost, while China struggles

The West is in the throes of a new Cold War. The trade war between the US, Europe and China - on everything from chips to cars - has escalated in 2023. The US imposed sanctions on chip exports to China. China retaliated by limiting exports of rare earth materials needed for chip manufacturing. This led to chip shortages and cost increases that affected industries from automobiles to televisions.

Rising chip demand and advances in AI were a boost to American semiconductor/chip companies and AI players, whose stocks (NVidia, Intel, Microsoft, Google) saw huge gains. The Nasdaq 100 delivered 54.3% returns YTD as momentum built around AI. Among the largest markets, the S&P 500 index was the outperformer.

S&P 500 delivered the highest returns in 2023 in USD

China is a different story. There are so many empty houses in China right now that these can accomodate 3 billion people. The country's real estate meltdown, as major companies defaulted on their debt, has spooked investors. The trade war and sanctions also hurt China a lot more than the US.

Anyone trying to predict oil prices in 2023 got their fingers burned. The OPEC cartel tried to keep prices high but failed, as Russia undercut their prices and US ramped up oil exports. Oil briefly traded above $85 per barrel when Hamas attacked Israel. But for most of the year oil prices stayed below that level, despite OPEC+ production cuts.

Lower oil prices limited the Middle East’s revenue. Consequently, the benchmark indices of UAE (ADX General) and Kuwait (BK Main 50) fell 6.8% and 5.2% YTD, respectively.  

UK FTSE delivered the highest returns across major indices

India comes out on top 

2023 was the year India put a rover on the moon, hosted the G20, and Modi's hugs got international coverage. We were very visible on the global stage, and the Indian economy had a lot of good news as well. The country recorded one of the highest GDP growth rates for the year (7.6% in the first half of 2023). The realty and automobile sectors in India saw the biggest gains in 2023.

India is the fastest-growing economy among large countries

While China struggled with a real estate crisis, the Indian realty sector boomed. The housing sales value in the top seven metros for the first nine months of 2023 exceeded 2022’s total. Nifty Realty was the biggest gainer of the year with 78% YTD returns.

India’s robust GDP growth has been driven by rising domestic consumption. The country recorded its highest-ever automobile sales in November, surpassing Japan and becoming the third-largest market after the US and China. The Nifty Auto index also saw an increase of 42% YTD.

IT stocks focused on services were badly hit due to global reductions in IT spending by major financial institutions. However, new geos and sectors have helped bridge this gap, leading to Nifty IT delivering  25% returns. 

India also benefited from an FII inflow of Rs 146,721.1 crore into the Indian equity market. This has positioned the Nifty50 among the top 10 best-performing indices among major economies. 

2024 looks more promising at the start, compared to 2023. Let's hope the optimists keep winning.

Screener: Stocks outperforming Nifty 50 with increased FII holdings and strong financials

HDFC Bank has the highest FII change

This screener consists of stocks outperforming both their respective industries and the Nifty 50 index, with increased Foreign Institutional Investor (FII) holdings in the past quarter and strong financial performance.

The stocks are from industries like banks, electric utilities, housing finance, electrical equipment, IT consulting & software, department stores and cement & cement products. Major stocks in the screener are HDFC Bank, Adani Power, LIC Housing Finance, KEI Industries, Sonata Software, Trent and Ultratech Cement. 

HDFC Bank tops the list of outperformers with the highest rise in FII holding, which increased by 18.8% QoQ to reach 52.1% in Q2FY24. The Government of Singapore and Invesco Developing Markets Fund have bought 2.3% and 1.2% stakes respectively. The company’s stock price has risen by 11.2% over the past month.

You can find more screeners here.