The Indian stock market has had a stellar run for most of the previous financial year (2021-22). Although the global economy continues to battle rising inflation (only worsened by the Russia-Ukraine war), the BSE Sensex still outperformed every other major Asian economy in the last year.
FY23 sure looks tricky–thanks to the ongoing uncertainty amid the war, rising commodity prices, and inflation that seems more persistent than transient.
Here’s our guide to navigating the markets as a trader in FY 2023:
Keep your eyes on inflation
Source: Economic Times
Inflation is likely to define the next financial year. Concerns about rising prices have been on everyone’s mind lately. And why not? Consumer prices have risen fast in a relatively short time, not only in India but across the world. In 2022, India’s CPI rose above 6% largely driven by a rise in fuel and food items.
Traders should keep their eyes glued on inflation numbers during the next year, since these numbers may force the central bank to raise interest rates and also affect consumption and margins, impacting earnings dramatically.
Watch out for Post-Pandemic Stocks
Likely, the worst of the coronavirus pandemic is over in India. The vaccination rate has picked up. Further, the vast majority of Indians have received at least one dose. In this scenario, the Indian economy will attempt to reach pre-pandemic activity levels. This is owing to the deferred or consumer pent-up demand.
Several sectors that underperformed during the pandemic may see a resurgence. For example, airline and hotel stocks may emerge as big winners in the coming financial year.
Other sectors that may do well post-pandemic include the consumer goods and hospitality sectors. Traders may find opportunities across these sectors. This is especially true if there are clear momentum and trends over the short to medium term, (significant for swing traders).
Watch out for changes in the geopolitical landscape
Traders need to keep a close eye on developing world events since they have a significant impact on the direction of the markets.
The ongoing Russia-Ukraine conflict has already thrown the global financial markets off-balance. For example, oil and natural gas prices are soaring high. Such situations can benefit smart traders who use derivatives in their favor.
Such events take place often, and it can be relatively straightforward to predict price movements based on such events.
Commodities – Will they ever come down?
Covid-19 sent supply chains into a tizzy and made it harder to maintain established logistical practices. This has led to tremendous shortages of various commodities. The Russia-Ukraine conflict has also caused a shortage of commodities, such as crude oil, natural gas, wheat, copper, and aluminum, adding further pressure to commodity prices.
Source: Investing.com
Traders exposed to commodity prices via F&O should focus on events that are likely to have an impact while ignoring the noise.
Are we staring at a recession?
There is an elephant in the room we cannot ignore—a part of the US treasury yield curve inverted, stoking recession fears for the US economy. Every recession in the last 40 years or so in the US has been preceded by yield curve inversions.
Source: Market Watch
Fed officials did not rule out aggressive hikes amid inflationary pressures. This has made higher yields and flatter curves the momentum play at present. The yield curve is likely to flatten further with expectations that the Fed will hike rates fast enough to risk a slowdown in growth. Yet, Fed Chair Powell said that the focus must remain on the shorter end of the curve, where it remained steep.
So, what will it be, FY23?
We can’t solve this puzzle yet, but we can say this:
Traders will need to keep their eyes open for geopolitical developments, their impact on markets and commodities, the response of central banks, the state of the global economy as well as primary market activity.
A lot can happen in FY2023 (including the LIC IPO!). Remember, trading is always tricky even during the best of times. A savvy trader should keep an eye on all the factors that may affect prices from the intraday and long-term perspectives and trade accordingly.
Further, it’s best to prepare for the worst when it comes to the markets.
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