Mumbai, Dec 31 (IANS): Despite heavy volatility, coupled with foreign fund outflows and a weak rupee, the Indian equities market emerged as one of the best performers globally in 2018, mainly on account of a rise in the pace of economic expansion, lower inflation and a normal monsoon.

The two key indices -- the S&P BSE Sensex and the Nifty50 -- closed higher by just 6 per cent and 3 per cent respectively. The gains were capped as crude oil prices rose and fears over a tariff war-induced global slowdown grew.

Besides global factors, state elections, budgetary announcements on equities and natural calamities roiled investor sentiments.

"The year 2018 was very volatile with a return of only 6 per cent. Bunch of reforms had a disruptive effect in the domestic economy while international market was negative due increase in yield, reduction in liquidity, Brexit and trade war impacting world economy," said Vinod Nair, Head of Research at Geojit Financial Services.

Index-wise, the barometer 30-scrip Sensitive Index (Sensex) of the S&P BSE augmented by 2,019.89 points or 5.93 per cent to close at 36,068.33 points from last year's close at 34,056.83 points.

On the National Stock Exchange (NSE), the broader Nifty50 surged by 329.2 points or 3.2 per cent to 10,862.55 points from its 2017's close of 10,530.70 points.

Last year, the barometer index had risen by a massive 7,430 points or 27.90 per cent to close at 34,056.83 points, while the broader Nifty50 surged by 2,344.90 points or 28.64 per cent to close at 10,530.70 points.

"Indian indices performance in 2018 was weaker than 2017 owing to host of issues, including but not limited to liquidity squeeze by global central bankers, volatility in commodity prices such as crude, and trade war concerns," SMC Investments & Advisors CMD D.K. Aggarwal told IANS.

Even though the 2018 gains were marginal, both the Sensex and Nifty50 emerged as amongst the best in attaining the highest growth rates globally.

They were the amongst best performing benchmark indices among the BRICS (Brazil, Russia, India, China, South Africa) group of countries.

"The performance of the world equity market was dull, in which India outperformed with positive return in INR terms and a negative return in dollar term to the emerging markets," Nair said.

Globally, Brazil's bellwether IBOVESPA index was the best performing with a growth of over 12 per cent, whereas China's Shanghai Composite plunged more than 25 per cent.

However, the domestic mid- and small-cap indices plunged during 2018, the S&P BSE mid-cap index fell by over 13 per cent and the small-cap index by 23 per cent.

"Small and mid-caps went out of favour in 2018 due to regulatory changes adopted by the exchanges and SEBI or RBI whereby traders got disincentivised to buy or hold on to these shares for long," HDFC Securities' Retail Research Head Deepak Jasani told IANS.

"Skeletons came out of some promoters' cupboards due to the relentless price fall. Disruption due to technology, e-commerce etc also impacted the business models of quite a few companies. Lastly in some cases the valuations which has risen abnormally high earlier reverted to their mean."

On the currency front, the Indian rupee was heavily dented in 2018 due to a sharp and sudden uptick in the prices of Brent crude and other commodities. The currency fell by 9.23 per cent against the USD at 69.77 from its previous close of 63.87, making it the worst performing Asian currency of the year.

In terms of investments, NSDL data showed that Foreign Portfolio Investors (FPIs) sold Rs 33,014 crore worth of equities in 2018.

Similarly, provisional data from the stock exchanges showed that Foreign Institutional Investors (FIIs) sold over Rs 73,000 crore worth of equities.

"The year 2017 saw the US Fed raising rates to 1.25 per cent from 0.75 per cent, while in 2018 this was further raised to 2.5 per cent. This accelerated outflows from emerging markets across the world," Jasani said.

The Fed's hikes prompted foreign investors to pull out of emerging markets, including India.

"It (outflow of foreign funds) is one of the factors which one can correlate with the performance of domestic markets, but it is to be seen that huge participation by domestic investors either directly or through Mutual Funds have shouldered the selling by FII's," Aggarwal said.

On sector-specific basis, the S&P BSE IT index gained the most with a rise of 26.1 per cent, whereas the S&P BSE telecom index lost 39.58 per cent.

The top five gainers on the NSE were Bajaj Finance (up 50.12 per cent), TCS (44.35), Tech Mahindra (43.65), HUL (34.52) and Infosys (27.16).

The top five losers were HPCL (down 39.45 per cent), Vedanta (40.07), Bharti Airtel (40.43), Yes Bank (42.12) and Tata Motors (59.19).