2023 will prove to be a volatile year for the Indian stock market

- Market growth will be limited due to global adverse factors

The coming year could prove to be a volatile year for the Indian stock market. The Nifty is currently trading at 20.7 times the long-term average of the index's constituents at 18.8 times one-year forward earnings. Besides, India is trading at a 98 percent gain compared to its emerging market peers, compared to the long-term average of 45 percent, market analysts said. We can debate the extent of this bullishness, but markets are expensive. Which is one of the main concerns.

There is a risk of recession in the world. There is a correlation between India's export growth and economic growth in the US and Europe. Developments related to the recession in the US have impacted India's export growth. Stock market momentum will be limited. However, the Indian equity market is not likely to have much downside due to strong domestic inflows. Pension funds, insurance funds and SIPs are likely to contribute heavily to Indian equities next year.

Continued foreign portfolio investor withdrawals may pressure markets, but with foreign portfolio investor ownership at a one-year low, scope for further selling is limited. In addition, there is a significant shift in household financial assets as a larger share of financial savings is shifting from deposits to equity and small savings.

Thus capital inflows on a net basis can help the market. Markets are expensive and will remain expensive due to strong flows. Normalization in China Impacts Capital Flows to India India and China do not compete for emerging market investment flows and are directly related. Foreign portfolio investor inflows to emerging markets will mean increased investment in India.