India's blue-chip Nifty 50 and BSE Sensex rose around 20% in 2023, their second-best year since 2017, and were among the top-performing stock indexes globally.
The rally was driven by sustained domestic mutual fund inflows, return of foreign buying, better-than-expected economic growth, and healthy corporate earnings.
Foreign portfolio investors (FPIs), who were net sellers of Indian shares in 2022 as global central banks hiked rates, returned to buying in 2023.
FPI purchases were the second-highest on record in 2023, only next to 2020 when valuations had turned favourable due to the sharp slide triggered by the COVID-19 pandemic.
"The flow of FPI money will drive the markets higher, while the retail investor continues to remain the backbone of the Indian stock market," said Sanjiv Bhasin, director at IIFL Securities.
The broader small- and mid-caps gained about 55.62% and 46.57% in 2023, far outperforming the blue-chip indexes despite valuation concerns.
"Overstretched valuations in certain pockets like small- and mid-caps are a concern in an otherwise oasis of calm that is Indian markets," said Asit Bhandarkar, senior fund manager of equity at JM Financial Asset Management.
Realty was the top major sectoral gainer, jumping 81.35% on strong demand outlook and steady corporate earnings.
Barring information technology, which fell on a slowdown in global client spending, and media, all other 11 major sectors hit fresh highs in 2023, as did 31 of the Nifty's 50 stocks.
Only two Nifty stocks logged annual losses. Adani Enterprises, which surged 79-fold over the last six years, lost over a quarter in value in the wake of U.S. short-seller Hindenburg Research's report alleging irregularities in the group's firms.
The conglomerate has denied all allegations, and the country's top court has reserved its judgement in the case.
UPL Ltd was the other loser, falling 18% due to weak earnings, high raw material costs and demand concerns.
