Indian equities went through considerable turmoil in Samvat 2067 as wobbly global markets coupled with high inflation and rising interest rates back home pared gains accrued during Samvat 2066. The 30-share BSE Sensex gave negative returns of about 18%, underperforming almost all other asset classes. This was the second worst year in a decade for the benchmark index after Samvat 2064 of 2007-08, when it posted a 52% decline in the aftermath of the global financial crisis.

Global woes have proven to be the biggest scourge in the last one year. The US economy teetered on the brink of recession even as countries in the euro zone such as Greece came perilously close to a sovereign default. In 2008, the governments had bailed out the corporates; this time round the governments themselves are on the verge of defaulting, said Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities.

The resulting uncertainty roiled markets worldwide, including India. It has been proven without a doubt now that our markets are completely aligned to the world markets. May be the economies are still not full linked but the capital markets certainly are, said Bandyopadhyay.

The global turmoil has also dictated the actions of foreign institutional investors (FIIs). FIIs flocked to safer havens whenever the crisis in Europe escalated but returned to the riskier emerging markets when the situation in developed economies improved, pointed out Manasije Mishra, MD & CEO, HSBC Direct Securities (India).

This risk on, risk off approach has contributed significantly to choppiness witnessed in the past year, according to Mishra. Volatility has become a serious issue for our markets, he said. FIIs bought shares worth $0.9 billion in Samvat 2067, a far cry from the nearly $32 billion worth of stocks purchased in Samvat 2066.

Retail investors too have hesitated to enter the markets. Retail investors seem to have lost complete interest in the stock market, said Mishra, adding that retail participation has plummeted nearly 50% in the past year. The contribution of the cash segment to the total average daily turnover on the exchanges touched a historic low in March.

The RBI raised interest rates by 225 basis points during Samvat 2067, making money dearer and setting the stage for slower GDP growth. Despite the hikes, though, the central bank hasnt succeeded in bringing down inflation to manageable levels.

With uncertainty in global economies likely to persist, the forecast for Indian equities next year is anybodys guess. It will be a difficult year. The troubles in developed economies will impact growth back home and we may be headed for more trouble if our GDP growth slows down to around 6%, said Mishra. Bandyopadhyay was more optimistic. I am quite bullish. We are almost at the peak of the rate cycle and if the monsoon stays on course things should look up from here, said Bandyopadhyay.