Indian stocks off to a weak New Year, trading marginally in red

Indian stock indices started off the New Year marginally in the red, extending losses from the previous session, primarily attributable to profit booking after a stellar cumulative performance in 2023. High valuations, as analysts pointed out, too, are a concern. On Friday, the last active session of 2023, benchmark indices – Sensex and Nifty — settled the session marginally low, largely due to profit booking and subdued global cues.

Cumulatively, the past 12 months have been stellar for investors who parked their money in Indian stocks. Though there has been some turbulence, first during the Adani-Hindenburg episode and lately during the initial days of the Israel-Hamas war, the calendar year 2023 gave handsome monetary dividends to stock market investors.

In 2023, Sensex and Nifty gained 18-19 per cent, on a cumulative basis. The indices had gained a mere 3-4 per cent in 2022. Foreign Portfolio Investors (FPIs) have trained their sight towards India, becoming net buyers in the country’s stock market in the calendar year 2023.

In December, especially, they made a beeline to invest in Indian stock markets, with a cumulative accumulation of Rs 66,135 crore. To put it into context, the entire year saw an inflow of about Rs 171,107 crore, and notably, over one-third of it came in December. In November, the FPI inflow was Rs 9,001 crore, data from the National Securities Depository (NSDL) showed.

The strong inflow of funds from foreign portfolio investors (FPIs) lately also supported the stocks to march towards multiple all-time highs. Firm GDP growth forecast, inflation at manageable levels, political stability at the central government level, and signs that the central banks world over are done with their monetary policy tightening have painted a bright picture for India – which many agencies have termed the fastest-growing major economy.
“The concern, however, is that most of this good news is in the price; valuations are a bit stretched and above the long-term averages. So, the market is vulnerable to corrections from presently unknown risks.

The broader market is overvalued; safety is in large-caps,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. Going ahead into the week, the key triggers for the markets in the first week of the new year include S&P Global Manufacturing PMI and Services PMI due on Wednesday and Friday, respectively.

On the macroeconomic front, the US Federal Reserve will release the minutes of the latest monetary policy meeting on Thursday.