2021 has been one of the busiest years for Initial Public Offerings (IPOs) with many new age companies making their debuts and absorbing much of the new money aided by the upward trends in the markets, to the exception of the last two months.
With inflation rising and the Fed showing its intention to tighten liquidity, markets over the past two months have been a bit volatile and foreign institutional investors (FIIs) have been selling on almost daily basis.
Therefore, 2022 begins with an expectation of tight liquidity, rising interest rates and uncertainty around Covid-19. On the positive side, however, the economy is showing strength and the corporate earnings cycle is on an uptrend.
Next year might not be a year of widespread rallying, but would be a year for stock pickers. You have to be very selective because the destruction of value in certain segments can be significant.
Santosh Kumar Singh, Head of Research, Motilal Oswal Asset Management Company lists areas that are likely to do well in 2022:
With two opposing themes in play, I would expect 2022 to be much more limited for the larger markets, however, some of the sectors can do very well.
The big banks are in a very good position with one of the best years expected on the credit quality front in more than a decade, unless Covid wreaks havoc.
We can also see credit growth starting to accelerate. Non-lending financial services, especially insurance, had a bad year in CY21 from an equity market perspective, despite a structurally positive environment.
We can see that CY22 is proving to be great for them with earnings traction and cheap valuations.
This is a structural game and given COVID, the industry could remain under pressure next year as well. We have seen some of the national drug companies exhibiting in the United States start to do well.
We can see large pharmaceutical companies doing very well from a stock market perspective.
c) Real estate:
This sector experienced a strong recovery during CY21 and therefore a massive outperformance of many stocks. We could see this recovery continue as the demand scenario improves and supply is still tight.
Commercial real estate could see a recovery later in the year if CoVID is brought under control.
Themes that can continue to play:
a) Digitization of the economy:
This was the predominant theme during CY21 with the IPOs of several new age digital companies. Digitization also means that Indian IT companies are growing at the fastest pace seen over the past decade. We might also see this theme remain one of the predominant themes over the next year or so.
b) Capital expenditure:
Private CAPEX as well as household investment has been missing over the past 5 years, we can see a recovery driven by falling interest rates and pent-up demand. In addition, the government will have to focus on job creation, which could lead to an increase in CAPEX.
However, the market can remain constrained as inflation increases and interest rates can start to rise.
This would mean that very high valued companies could start to experience a relative correction as the discount rate starts to rise.
In addition, many high valuation companies are commodity consumers and if prices remain firm the margin may remain under pressure.
(Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)