Rewinding Lessons from 2022
The year 2022 turned out to be a difficult one with unprecedented inflation and economic turbulence. As the pandemic receded, the economy was expected to bloom. However, the road to recovery did not go as expected given the geopolitical tensions between Russia and Ukraine which brought along with it high inflation.
Yet on the brighter side, Indian markets have shown resilience leaving a lasting impression by outperforming other global indices.
As we come close to the year-end, let’s rewind and review the lessons this year has taught us:
The war taught the importance of self-reliance. India launched “Made in India” in 2014 with the aim to reduce our import dependence. Even when localisation overtakes globalisation as the next crucial factor, the financial markets are still interconnected and will continue to have an impact on one another. We should focus on the sectors which will be directly and closely linked to the growth of Atmanirbhar Bharat.
Inflation is a part and parcel of life pinching us every few years. 2022 proved that classic inflation hedges don’t always work. Despite high inflation, we witnessed flat prices in gold. Our portfolio needs to be well-diversified across asset classes with well-balanced investing among sectors.
Our risk appetite and ability to invest will be influenced by factors beyond our control such as rising inflation and central banks’ steps taken to curb the same. One cannot fight the central banks’ ability to control the money supply.
Catastrophes come and go making markets unstable but eventually, they recover. Global indices plunged when the pandemic hit the world. The same rebounded higher after the pandemic fear settled. This calendar year, indices have slumped due to uncertainty. However, as the macroeconomic situation has started to improve, indices are ready to pick up.
Volatility cannot be escaped and an investor needs to remain invested with patience in quality names for a long tenure, the market does reward long-term investors.
Money can be made by entering at the right time. This time is when the stock is trading far below its intrinsic value. The key is to identify the right themes which are likely to play out and maintain composure during the short-term hiccups. The cyclicality in the markets is a feature ensuring that everything works sometimes but nothing works all the time.
Technical Outlook
After three weeks of negative closing, a strong tall green candle is formed on the weekly chart of the benchmark index which indicates a probable pause of a short-term correction in the index.
The weekly strength indicator RSI (14) and momentum oscillator Stochastic have both readings in positive terrain and are above their respective reference lines indicating positive bias in the short to medium term.
The chart pattern suggests that if Nifty crosses and sustains above 18,300 levels it would witness buying which would lead the index towards 18,450 levels. However, if the index breaks below the 17,800 level it would witness selling which would take the index toward the 17,500 levels.
Expectations for the Week
The upcoming week will release some crucial data. The US will report its November 2022 export and import statistics along with its balance of trade results. When the FOMC minutes are made public later this week, Indian markets could react in synch with the rest of the global peers as market participants try to decipher the Fed's action plan. Domestically, the New Year is scheduled to start with the monthly sales numbers of automobile companies. Along with the growth rates across segments, the demand in rural areas will be monitored. In times of volatility, investors should structure their portfolios appropriately and concentrate on the long-term picture rather than the short-term challenges. Nifty50 closed the week at 18,105.30, up by 1.68%.
Samco Family wishes you a Very Happy New Year!

Smallcap Can Bring Bigger Profits in 2023!

Nifty50 has remained resilient and touched new highs clocking a 5.5% gain on year to date basis despite global macroeconomic headwinds. Nifty Midcap 100 has also delivered similar returns of 5.6%. Meanwhile, Nifty Smallcap 100 remained an underperformer for the said period as investors bore a loss of 12%. But the best time to accumulate Smallcap stocks is now.
Smallcaps generally tend to have a higher cost of capital compared to Largecaps. With inflation inching down, interest rates are expected to fall. The November consumer price index (CPI) inflation came in at 5.88%, within the RBI’s tolerance band of 6%. The easing of inflation and interest rates would bring the raw material costs and interest expenses down making these companies margin accretive.
Apart from this, I also mentioned the capex cycle picking up a few weeks back. When you compare the Nifty50 and Nifty Smallcap 100, the weightage for the capital goods sector is much higher at 13% in the Nifty Smallcap index versus 3% in the Nifty50. As the capital goods segment picks momentum, the Smallcap index is likely to yield higher returns compared to Nifty50.
The chart below shows the yearly returns of the Nifty Smallcap 100 index. During the subprime crisis, the index halved, then rebounded by 85% the following year. This pattern repeated in 2011-2012, 2013-14, and 2019-2020.
2022 is again a negative year for the Smallcap index. However, the chances of the index reverting to its mean and generating a positive return are high in 2023.

Indian economy is expected to grow at a much faster rate than the rest of the world in the upcoming decade. Smallcap stocks have higher growth potential as compared to Midcaps and Largecaps and the growth of the Indian economy will only assist this space.
Smallcap poses a great investment opportunity for growth in the long term as stocks may move from Smallcap to Midcap and further to Largecap. However, with high returns comes higher risks. Investors need to be wary of companies with low corporate governance. Investing in companies with sound professional management with good profit growth is the key here. Investors must avoid companies with excessive leverage in an elevated interest rate environment.
Market participants may consider this as a buying opportunity to accumulate sound Smallcap stocks for a longer time horizon while ignoring the short-term hiccups.

Technical Outlook
The previous week on the weekly chart, Nifty50 formed a bearish dark cloud cover candle stick pattern at all-time high levels, and the index continued to drift lower post that. At the start of the week, bulls were having the upper hand and the index gained close to 2% making a high of around 18,696 levels. Nifty50 encountered resistance near 18,700 levels, and the market saw selling pressure on weekly expiry. Once it fell below the 18,550 support zone, the bearish trend intensified to 18,300.
India VIX, witnessed a bounce of more than 20% in a week indicating some uncertainty creeping at higher levels. On the technical ground, the support for the Index is placed near 18,100 and any move below the same will extend the fall till 17,900 levels. Similarly, on the higher side, 18,500 will be the immediate resistance followed by 18,650 levels. Nifty50 closed the week at 18,269, down 1.23%.

MPC Dec 2022 Meet: A Reality check by the RBI!

For the past couple of years, the focus of markets and financial stakeholders on hitting the inflation target of 4% was diluted. The focus was to support growth and be okay with turning a blind eye to inflation breaching the upper limit. Furthermore, the market seemed a little too much interested in the Fed rates and assumed it is a given that RBI would follow suit. The RBI’s governor address was a wake-up call stating it’s time to start looking at the seriousness of Indian inflation closely. As quoted by the governor "Breaking the Core Inflation persistency" is the key focus of RBI and very rightly so in my opinion.
The peak of inflation as stated by the deputy governor is behind us but the moderation of inflation is grudging. The Core inflation as per the latest data is still hovering at 6.2%. This has taken a big toll on the consumption of the mass segment. As evident by the latest quarterly result although the demand for premium products has been strong, the low and mid-segment products are witnessing poor growth. This is a classic example of a K-Shaped recovery where the economically lower segment is not able to cope with rising inflation. RBI’s Arjuna eye on Inflation is beneficial to this large segment of the population and in turn good for sectors like FMCG, Staples, Auto, etc. which are dependent upon the revival of the heartlands of India.
The RBI lowered its GDP forecast for FY23 to 6.8% from 7%. This still is an impressive growth rate in comparison to our global peers. The RBI is strategically using this period of good growth for hiking policy rates so that the impact on growth is less visible. Having said this, the growth in certain segments remains a cause of concern. The manufacturing in Q2FY23 witnessed a YoY de-growth of 4.3%. The problem in manufacturing has been a continuing worry, although government spending has been robust, the lack of private investments remains a concern.
As per the RBI data, out of 200 bps only 46 bps have been passed on through deposits. The Banks have been enjoying healthy margins in the past quarters. Despite slower deposit growth, the banks are able to generate strong credit growth as they are sitting on healthy cash. However, going forward Deposits rates of banks are expected to increase at a faster rate.
With deposits increasing and bond yields rising it will also be interesting to notice whether the incremental investments into equities experience pressure with bonds getting attractive.
Despite the US rate hikes, the US wages are growing at 6% annualized, this poses uncertainty on when the Fed will stop hiking rates. Thus, by maintaining the stance at “Withdrawal of Accommodation” RBI has dodged being in a box and will have the liberty to look at future data points to navigate its future course of action.
Overall, the RBI’s commentary has tilted toward a Hawkish stance and has reminded the market that India is too big and strong an economy to have a policy mimicking developed countries. Whether RBI would be content to just see the momentum of core inflation dropping or actually want it to reach 4% levels would determine the actual peak in interest rates.

Expectations of the week
The upcoming week has a series of important events lined up. The three major economies US, UK & India will be reporting their inflation numbers. Therefore, global markets will have a keen eye on these figures and would hope for an improving scenario. Further, the US and UK will be announcing their interest rate decisions and this will keep the global markets on their feet.
Can Bulls Go Wild in December?

As we enter the last month of 2022, the key market indices hit record highs setting in a festive mood. While we all wait for Santa to climb down the chimney to give us gifts, we are not the only ones Santa visits. He is said to take a trip to Dalal Street making bulls push up the stock prices.
This is the Santa Claus rally. This phase is a seasonal phenomenon which exhibits a stock market surge through the last five trading days of December and at times extends for the first two trading sessions of the New Year.
Empirical data shows that December is the month which delivers the highest returns when compared to the other months of the year. The graph below displays the average monthly return outcome over the past 20 years. December, compared to other months, has the highest probability of 80% to close in green. It has clocked an average of 3.2% return during the month, the highest throughout the year.

One of the popular reasons for such a phenomenon is Foreign Institutional Investors (FII’s) tend to withdraw before the end of their financial year. Lower volumes are an effect of a retreat by FII from the markets in the latter half of the month. This makes it simpler for Domestic Institutional Investors (DII’s) to support their net asset values (NAVs) for fiscal year-end closing.
The reason for such a rally is influenced by the situation that year. This year, one of the reasons that we can say is the inflation cooling off. This has led to the anticipation of less aggressive rate hikes by the central banks. No matter what the reason for an up move each year, the fact remains that markets tend to rise in December.
Let me highlight that seasonality is not the only aspect you must consider while making your investing decisions. It is common psychology for investors to jump on the riding sledge to gain profits. What needs to be kept in mind is to not get into any kind of FOMO as the sleigh can skid. Club it with your own technical or fundamental parameters and purchase at the right valuations.

Technical Outlook
NIFTY started the week on a positive note and registered its lifetime high levels and followed the suit for four straight days and finally claim a lifetime high of 18,887.60 levels on 1st December. The buying momentum, however, got fizzled out on Friday’s session which pulled the index below 18,800 levels.
Despite the recent rally up-trend in the broader time frame is still very impressive but the minor throwback at the present level cannot be ruled out. On the daily chart, the Index has formed a Bearish Crab Harmonic pattern so will not be a surprise if profit booking arises. The bulls need to surpass 18,900 levels to gain bullish momentum as the options seller are active near 19,000 levels with an increased OI. The support for the Index is placed near 18,500 and any move below the same will extend the fall to 18,380 levels.

Expectations for the week
The upcoming week is going to be a host of important events. To begin with, we have a balance of trade data of two major economies, the US and China. China will also report its MoM and YoY inflation rate. Investors worldwide will keep a close eye on these events as they would determine the path global indices would choose to follow. Back home, the attention would be drawn to the RBI interest rate decision. After three consecutive 50 bps rate hikes, the CPI inched below 7% in October. Therefore, the street expects a 35 bps rate hike instead of half a percent. The MPC’s projection and discussion about inflation and the growth of the economy will be the key monitorable.