Protracted bear market to continue through 2023: India remains bright

Bond and equity markets across the world started the year with a strong rally, or perhaps we can say a bit too strong for the momentum to sustain in any meaningful way. Much of the bounce could be attributed to tax loss harvesting and portfolio rebalancing as we started off 2023 from brutally hit sentiment and substantial losses across all major asset classes. It was supported by the most crucial factor which is at the forefront and leading the course of wealth distribution i.e. inflation. However, the latest US CPI print released on 14th Feb,2023 somehow again shifted the narrative to possibly weaker economical conditions and tighter monetory policy for longer than expected period ahead, setting the stage for protracted bear market. This directly translates to higher terminal Fed funds rate which can have serious consequences for major economies, noting the fact that full-blown effects of high interest rates are yet to be seen and felt due to lag effects! Though predicting the exact timing is almost as hard as finding a needle in large haystack, important leading indicators are suggesting that the US should head into recession later this year. Employment rate is the last standing gauge which is saying no recession but it may not last by the end of 2023.

Indian economy and market should continue to outperform the global peers on account of intense leadership, strong earnings in select sectors and highly favourable government policies which results in attracting FDI from various countries. Even though the start has not been as good as other emerging and developed markets, we expect it to recover from the second half of the year. The foreign institutional investors are yet to resume equity buying on account of relatively high dollar strength and elevated risk free rate.

As far as crypto markets are concerned, the Bitcoin (though rallied almost 50% from most recent lows ytd) has not been able to establish itself as store of value or digital gold or global medium of exchange (yet) but we believe as it continues to go through multiple cycles of extreme highs and lows, true value could emerge out of it in next 5 to 7 years.

Last updated on March 3rd, 2023 at 11:54 am