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While the leadership in the asset classes keeps on changing in different market cycles, equities have been the best-performing asset class in 2021.
Nifty was up 24%, midcap by 46%, and smallcap by 59% while gold prices contracted by 4% in 2021. 2022, however, has been a transition year, exhibiting liquidity reversal, policy tightening, geopolitical concerns, and a rising inflationary scenario which led to higher commodity prices for the first half of the year.
Supported by these attributes, gold has emerged as the best-performing asset class for the first eleven months of 2022. On the encouraging side, commodity prices are likely to see some moderation in H2 FY23 along with some cool-off in inflation expectations as well.
The market fundamentals for H2 FY23 would be driven by-
the direction of the bond yields, oil prices, and dollar index,
interest rate hike by the U.S. Fed, and
the intensity of inflation.
The volatility, however, is likely to continue for some more time before it concludes in a more concrete direction. The current level of India’s VIX is below its long-term average, indicating the market currently being in a neutral zone (neither panic nor exuberance).
In this context, the current setup continues to be a ‘Buy on Dips’ market.
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