Unless the Omicron gets more ominous to trigger a third wave of pandemic, 2022 will be the year of returning to normalcy, believes Harshad Chetanwala, who co-founded MyWealthGrowth.com.
While sharing his views with Moneycontrol for the year ahead, Chetanwala harped on sectors like real estate, IT, banking, metals and auto. “Growth in sectors like real estate and IT will also help improve demand in other sectors as these sectors are highly labour-intensive,” he says. Excerpts from the interaction:
The market has given 23-25 percent return in 2021 and our benchmarks featured among the top five global indices. How do you sum up the year? Do you expect the same trend in 2022?
The year 2021 started on a positive note but unfortunately slowed down during the second wave in April-June. Baring those three to four months, economic activities continued to remain strong and regained pace. Normalcy is returning across the country as COVID cases are reducing and vaccination efforts remain strong. This will help in improving the overall consumption in 2022 as well.
India was among one of the preferred investment destinations during in 2021, except for outflows in recent months. However, domestic investors stayed strong throughout the year and are expected to remain so in the coming year as well.
Forecasting returns for the coming year is not easy as few events will test the stock markets in near future and throughout the year. However, with growth coming back across different sectors, markets are expected to do well in 2022.
What are the risks and concerns that can spoil the market momentum? Do you see FII outflow as a major concern for India?
FIIs have withdrawn over the last few weeks and months, but domestic investors continued to participate. Factors related to increasing inflation and interest rate can impact the market momentum. Globally, interest rates are expected to increase and the same is expected in India as well.
Any increase in interest rate affects the borrowing capabilities of companies and may slow the pace of growth they target. The uncertainty over how the Omicron variant will behave and what kind of impact it will have in the form of a third wave in India and internationally is another major concern. While Omicron related reports so far suggest a higher transmission rate but milder symptoms, we will have to wait and watch. Other events are US Fed rate tapering and concerns about the overvaluation of the Indian stock market may result in foreign investors pulling out their money from India.
The Union Budget is around the corner. What are your broad expectations?
This year’s (2021) budget was forward-looking along with a focus on growth. It is expected that the government will continue with the same stand and plan to go ahead with the divestment and monetisation of certain PSUs which will be moved in the right direction as far as growth is concerned.
The broader markets – Nifty Midcap 100 and Smallcap 100 indices – rallied 50 percent and 60 percent so far this year. Do you expect such outperformance compared to the benchmarks to continue in 2022 as well?
The growth among the midcap and smallcap companies got strengthened during the year and we believe there are good companies with long-term opportunities in the mid-cap space. Regarding small-cap, we have constantly advised investors to follow a cautious approach after the kind of run-up they had in their valuations.
Those investors who need money in the coming year or if their allocations in small-caps have increased a lot can consider booking profits at regular intervals if small-caps continue to perform well in the near term. We must keep in mind that the impact on small-cap companies is higher during uncertain times and this can result in erosion of profits.
Have you spotted any themes for investors for strong returns in 2022?
The year 2021 has been a year of recovery and whenever the economic cycle starts recovering, cyclical sectors tend to lead the growth.
FMCG sector that is steady across the time has underperformed, despite higher inflation, which is usually positive for the sector. However, when inflation falls, these companies retain the prices resulting in margin expansion. Some companies are also facing input pressures like palm oil and plastic. Banking and auto have also got affected recently due to muted growth in advances and shortage of supply of semiconductors.
At the same time, recovery in these sectors is expected to remain strong with the resumption of normalcy. We expect sectors like real estate, IT, banking, metals and auto to do well for investors in 2022 as well. The growth in sectors like real estate and IT also help improve demand in other sectors as these sectors are highly labour-intensive.
What are the key events to watch out for in 2022?
The year 2022 can be a year of returning to normalcy. Some events can have a positive impact or a negative impact on the stock markets. The interest rates movement will determine the money flows into the emerging markets. The severity of the third wave of COVID due to the Omicron variant can either again impact domestic and global mobility or can lead to faster hard immunity.
The pace of the US Fed rate tapering can either be gradual or faster than expected. Back home, we have the state elections in Uttar Pradesh. It may have some impact on the sentiment depending on its results.
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