The year 2022 is starting with an expectation of tightening liquidity, increasing interest rates and uncertainty around Covid still remaining.
Mumbai: 2021 has been one of the most active years for initial public offering (IPO) with the digital companies making their debut and lapping up a vast proportion of the new money, according to Motilal Oswal Asset Management Company.
The markets too have been in an uptrend barring the last couple of months. With inflation moving up and the Fed showing its intentions to tighten liquidity, the markets in the last couple of months have been a bit volatile with the Foreign Institutional Investors (FIIs) being the sellers almost daily.
Hence, 2022 is starting with an expectation of tightening liquidity, increasing interest rates and uncertainty around Covid still remaining.
However, the economy is showing strength on the brighter side and the corporate earning cycle is on an uptrend.
“With two opposing themes playing around, I would expect 2022 to be much more range-bound for the broader markets. However, some of the sectors may do really well,” said Santosh Kumar Singh, Head of Research, Motilal Oswal Asset Management Company.
“Large banks are very well placed with one of the best expected years on the credit quality front in more than a decade unless Covid creates havoc. We can also see credit growth starting to pick up,” he added.
The non-lending financials, specifically insurance, had a bad year in calendar year 2021 (CY21) from a stock market perspective despite the environment turning positive structurally.
“We can see CY22 turning out to be great for them with traction in earnings and cheap valuations,” said Singh.
“Pharma: This is a structural play and given Covid the sector may remain under focus in the next year as well. We have seen some of the domestic pharma companies with the US exposure starting to do well. We may see large pharma companies doing really well from stock market perspective,” he added.
The Head of Research of Motilal Oswal Asset Management Company further said the real estate sector saw a big revival in CY21 and hence “massive outperformance” from many stocks.
The digitisation of the economy was the predominant theme during CY21 with IPO of multiple new age digital companies. Digitisation also meant the Indian IT companies are growing at the fastest pace seen over the last decade.
“We may see this theme to remain one of the predominant one during next year as well,” said Singh.
Commenting on capital expenditure, Singh said: “Both private capex as well as household capex were missing for last five years, we can see a revival driven by lower interest rates and pent-up demand.”
“Also, the government will have to focus on job creation which may lead to higher capex. However, as said in the beginning the market may remain range bound as inflation is rising and interest rates may start moving up,” he added.
This would mean that very high valuation companies may start seeing relative correction as the discount rate would start moving up. Also, a lot of high valuation companies are consumers of commodities and if the prices remain firmed up then the margin can remain under pressure.
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Hence, the next year may not be a year of broad-based rally but would be a year for stock pickers. One needs to be very selective as the value destruction in certain segments can be significant.
Naveen Kulkarni, Chief Investment Officer, Axis Securities, said 2021 has been a year of recovery, rehabilitation and establishing a base for future growth.
“2022 will be a little more volatile but will still be very good for equity investors in India. 2022 is very likely to be another year of good double-digit returns and continued wealth creation. Autos, Banks, and Capital goods, literally the A B C of equity markets, will be the most interesting sectors for 2022,” he added.
