 "BSE, stock market, sensex")
The financial year 2023 (FY23) proved to be a rough year for equity markets, eerily reminiscent of the global financial crisis of 2008. The turbulence can be attributed to a concoction of interest rate hikes, liquidity tightening, foreign investment outflows, a global war and the resulting soaring fuel and food prices.
Let’s revisit the key moments that dominated market trajectory in FY23:
Ukraine war: The world was just beginning to move past the damage done by Covid-19 when Russia’s invasion of Ukraine in February 2022 rattled hopes of any recovery. The next thing known was a sharp energy supply shortage as countries began to discontinue oil and gas imports from one of the largest producers–Russia. The supply crunch led to a spiralling spike in fuel, food and raw material prices with the US recording the highest inflation rate in the last 40 years.
Interest rates: As economies grappled with the aftermath of record high inflation and fears of recession, respective central banks including the US Fed and the RBI set on an aggressive rate hike cycle. Since March 2022, the Fed has raised rates by 500 bps so far, which is a new high since 2007. Though, towards the end of the fiscal, consumer prices have eased, pushing central banks to also soften their stance on the rate hike trajectory. In the last two meetings, the Fed has delivered a smaller 25 bps increase.
FPI outflows: Since April 2022, foreign investors have cashed out equity market holdings worth Rs 2 trillion so far. The massive exodus came as higher interest rates made equities way unattractive as compared to debt. This was on top of FIIs concerns about Indian market’s overvaluation. Significantly, the currency also bore the brunt of aggressive foreign selling and has depreciated more than 10 per cent over June 2022 level of 74.47/$.
Turmoil led by Adani-Hindenburg saga: The spat between the Adani Group and US short seller Hindenburg led to a striking meltdown in overall market sentiment in the last quarter of FY23. Shares of financials, especially banks, were collateral damage in this saga as Adani’s debt repayment concerns clouded sentiment. Since the release of the scathing report by Hindenburg Research, which accused the Adani group of stock manipulation, accounting fraud, and improper use of offshore tax havens, the group has taken several measures to regain investor trust.
Banking crisis in the West: The last nail in the coffin for FY23 again came from foreign grounds as tech-focussed regional lenders in the US-SVB, Silicon Bank and Signature Bank collapsed this month due to a run on their deposits caused by higher interest rates and losses on their bond portfolios. The contagion spread to Europe as the UBS group had to rescue its rival Swiss lender Credit Suisse in a government mediated deal. All these developments took global financial markets by a storm with Indian markets left unspared.
