Rupeeting Monthly Performance Update - December 2022

After a 10% rally in just the last two months, equity markets finally took a breather in December 2022 and fell by 4%.

However, unlike the last two months when large caps had outperformed mid and small caps, December was marked by a sharper fall in larger stocks.

International stocks too suffered as the common factors of economic slowdown and increased COVID worries haunted markets.

In this context, Rupeeting’s performance was mixed - with half the portfolios beating Nifty 50, and half underperforming.

Markets in December

Several factors resulted in the bogged-down performance of Indian equities in December:

• While inflation data showed some moderation, a slowdown in the pace of rate hikes was expected from the RBI. And that did happen, post which the markets behaved in a classic buy-the-rumour-sell-the-news manner

• Despite a slower pace for hikes, the fact remains - higher interest rates are here to stay for a bit. That will continue affecting the economy, and the markets

• China has been seeing its worst COVID wave with millions being affected. This comes in at a time when China is committed to opening the economy up, resulting in a global COVID scare all over again

• India’s super-high valuations leave little room for any mishaps, thereby making negative reactions on the markets more likely

While equities fell, both in the US and in India; other debt remained tepid too. Only Gold managed to score a decent return in the month.

Rupeeting in December 2022 - Equity Portfolios

Rupeeting had a mixed performance with 3 of our 6 equity portfolios outperforming, and the rest underperforming the Nifty 50. Some observations on our performance:

1. Portfolios with higher exposure to mid and small-caps outperformed

2. Outperformance in Disruptors was led by the sharp rally seen in Yes Bank, which was up 25% in just one month

3. Exposure to consumer durables, real estate and IT hurt performance across Rocketship, Bread & Butter and Value Migration

4. Higher exposure to large caps in Bread & Butter and Value Migration

Rupeeting in December 2022 - All-Weather Portfolios

We saw minor underperformance in the Balanced and Conservative portfolios and outperformance in the Aggressive portfolio. Overall, we seem well-placed on these.

What worked for us?

1. Reduced exposure to equities to the lower bound of limits

2. Equal exposure to government and corporate bonds

3. Removed international equities from the portfolios at the end of last year

What didn't? Five-year bonds underperformed versus ten-year bonds

What’s next for the market?

1. We see a case for equity markets to be similar in 2022 - on an upward trajectory, but marred by volatility

2. Near-term pressures are high, led by the risk of earnings downgrades, especially at supremely elevated valuations

3. Fixed-income investments are likely to get attractive in 2023 as inflation reduces and central bank policy reverses

4. We don't see a favourable risk-reward for other asset classes - a case for continued trouble in international markets, a fall in commodities with inflation, and difficulty in real estate owing to higher rates