Goldman Sachs 10 key lessons learned in 2023 that could be relevant for investors to position in the market for 2024.
1. India remains one of the best compounding markets in the region: NIFTY's 20% annual return last year ranks in the 62nd historical percentile over the past 3 decades, and is above the 14% average annual return in 2023 as per Goldman Sachs; Its 8th consecutive year of positive equity returns .
2. Record outperformance streak vs. MXAPJ- Record outperformance streak versus MXAPJ (MSCI Asia Pacific Ex Japan Index).it was the third successive year (only repeated once during 2005-07). Goldman Sachs expect another year of strong returns in 2024 and stay overweight India within their regional allocations.
3. ) Intra-year realized volatility continues to trend lower, improving risk-adjusted returns- In 2023, annual realized volatility for NIFTY was 10%, which is the second lowest annual volatility in the past 3 decades. Goldman Sachs analysts note that realized volatility has been trending down in recent years, partly because of sticky bids from retail flows, which have offset the risk-off moves during bouts of foreign selling.
4. Fastest addition of a trillion-US dollar market cap: it was the Fastest addition of a trillion-US dollar market cap. India’s listed equity market capitalization crossed $4 trillion, accruing from $3 trillion to $4 trillion in less than 3 yrs (market cap addition from $1tn to $2tn took about 10 years and the next trillion from $2tn to $3tn accrued in about 4 years).
5. Earnings accruals drove 20% returns, even with high starting valuations: MSCI India’s 20% US dollar gain in 2023 was driven by 18% EPS change, 2% forward PE change and about 1% rupee depreciation versus dollar.
6. Significant mid/smallcap outperformance, helped by flows: Mid and small-cap stocks had a stellar year in 2023, with NSE Midcap and SmallCap indices up 47% and 56% respectively, significantly outperforming the large cap NIFTY ( up 20% in 2023). Goldman Sachs analysts said that they have been noting that domestic mutual fund flows picked up most in small and midcaps last year, with small and midcap mandates receiving the largest share of inflows in 2023 (while large cap mandates saw net outflows from January through November 2023).
7. Sector and stock dispersion remained wide, suggesting ample alpha opportunities- Within MSCI India, the spread between the best (real estate) and worst performing sector (utilities) was 80pp. 70% of constituents outperformed, 94% delivered positive returns and 40% stocks saw more than 40% returns in 2023.
8. Size, GARP strategies outperformed quality factors; Looking at the market from a style lens, ‘Size’ factor led in 2023 reflecting the significant outperformance of mid and small caps over large caps as noted earlier, said Goldman Sachs analysts. Based on equal-weighted returns of MSCI India top versus. bottom quartile factor performances, GARP (blend of Growth and Value) stocks outperformed pure Value and Growth stocks while quality factors like ROE and Balance sheet lagged in 2023. Goldman Sachs expect large caps and quality factors to perform better in 2024.
9. Foreign inflows returned sharply, but overall positioning remains low: FII bought $21billion in 2023 (versus $17billion outflows in 2022), second largest in Asia after Japan. Goldman Sachs analysts think overall foreign positioning remains light as evidenced by low foreign ownership in BSE 200 stocks (near bottom decile over past 10 years) and conservative mutual fund positioning. Low FII ownership and MF allocations suggest conservative positioning overall, they added.
10.) Sticky demand from increasingly influential domestic flows: Domestic Institutions bought $22billion last year and $70billion in past 3 years. Retail inflows via Systematic investment Plans rose consistently, with cumulative inflows of $20billion until November 2023.
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