Mumbai: According to Motilal Oswal Asset Management Company, 2021 has been one of the most active years for initial public offerings (IPOs) with digital companies taking in a slew of new money.
Barring the last few months, the market has also been bullish. With inflation rising and the Fed showing its intent to tighten liquidity, the market has been a bit volatile over the past few months as foreign institutional investors (FIIs) are almost daily sellers.
Hence, 2022 is expected to tighten liquidity, increase in interest rates and uncertainty around COVID.
However, the economy is showing strength on the bright side and the corporate earnings cycle is on an upward trajectory.
“With two opposing themes at play, I expect 2022 to be too range bound for the broader markets. However, some sectors can do really well,” said Santosh Kumar Singh, Head of Research, Motilal Oswal Asset Management Company .
“The big banks are placed with one of the best expected years on the credit quality front in over a decade till the time covid plays havoc. We can also see that credit growth is starting to pick up.”
Non-lending financials, particularly insurance, had a poor year from a stock market perspective in calendar year 2021 (CY21), despite the environment turning structurally positive.
Singh said, “We can see that CY22 could prove to be great for them with higher earnings growth and cheaper valuations.
“Pharma: It is a structural game and this sector may remain in focus next year also in view of Covid. We have seen some domestic pharma companies doing well with US exposure. We can see large pharma companies doing well from a stock market perspective.”
Head of Research, Motilal Oswal Asset Management Company further said that the real estate sector saw a major revival in CY21 and hence “massively outperformed” by many stocks.
Digitization of the economy was a major theme during CY21 with many new age digital companies IPOs. Digitization also means that Indian IT companies are growing at the fastest pace in the last decade.
“We can see this topic as one of the major themes next year also,” Singh said.
Commenting on capital expenditure, Singh said: “While both private capital expenditure and domestic capital expenditure were missing for the last five years, we may see a revival driven by lower interest rates and sluggish demand.”
“Also, the government has to focus on job creation which can lead to higher capital expenditure. However, as said in the beginning, the market may remain limited as inflation is picking up and interest rates may start rising,” he said.
This would mean that companies with very high valuations may begin to see relative improvement as the discount rate begins to rise. Also, many high valuation companies are consumers of the commodity and margins could remain under pressure if prices remain firm.
Therefore, next year may not be a year of broad-based rally, but will be a year for stock pickers. One needs to be very selective as price destruction can be significant in some areas.
Naveen Kulkarni, Chief Investment Officer, Axis Securities said that 2021 has been a year of recovery, rehabilitation and setting the groundwork for future growth.
“2022 will be a bit more volatile but still great for equity investors in India. 2022 is likely to be another year of good double digit returns and sustained wealth creation. Auto, banks and capital goods, virtually the ABC of equity markets, will be the most interesting sectors for 2022,” he said.
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