Topic 2: OUTLOOK FOR 2022
EQUITY MARKET OUTLOOK
Like 2021, the equity market in 2022 will have its fair share of volatility. Several negative factors such as rich valuations, rollback of easy monetary policies across the globe, rising oil prices would lead to a market downturn. However, a positive economic backdrop and revival in corporate earnings will elevate equity gains.
EXPECT SOLID EARNINGS RECOVERY
Also, the year 2021 was spectacular for initial public offerings (IPOs), with Rs 1.20 lakh crore ($16 billion) raised over 63 issues. A sizable number of Indian tech startups will hit the public market in 2022. We believe markets will post their seventh consecutive year of positive returns in 2022, albeit more moderate returns than we saw in 2021. Buying on dips or accumulation would be an ideal strategy. We would encourage investors to focus on quality large and midcap companies available at reasonable valuations.
Fixed Income Outlook
While the RBI's commentary focuses on supporting growth, the central bank is well on its way to normalizing monetary policies. While the RBI has been vocal about its unconditional support for growth, the stickiness in the headline inflation has forced the RBI to rethink its strategy. The RBI's action to conduct 3-day variable rate reverse repo shows its clear intention to suck out liquidity in the system. We expect the RBI to hike interest rates in the second half of 2022 if inflation remains elevated for an extended period.
As we expect interest rates to be volatile, it is best to avoid funds investing in long-dated securities. Thereby, investors can consider investing in securities with shorter maturity (short duration funds and banking & PSU funds). Also, one can consider investing in floater rate funds as returns are adjusted based on prevailing yields in the market. To benefit from the steepness of the yield curve, one can invest in funds with 2.5 to 4 years of duration and run a rolldown strategy. Investors can continue to hold their investments in short (including money market) to medium duration funds as we expect a limited impact on these funds for a given change in interest rates. An investor invested in a long-duration fund can exit their holding after considering the tax event. However, investors invested in long-dated target maturity ETFs/Index funds can continue holding them until maturity.
Like 2021, the equity market in 2022 will have its fair share of volatility. Several negative factors such as rich valuations, rollback of easy monetary policies across the globe, rising oil prices would lead to a market downturn. However, a positive economic backdrop and revival in corporate earnings will elevate equity gains.
EXPECT SOLID EARNINGS RECOVERY
Also, the year 2021 was spectacular for initial public offerings (IPOs), with Rs 1.20 lakh crore ($16 billion) raised over 63 issues. A sizable number of Indian tech startups will hit the public market in 2022. We believe markets will post their seventh consecutive year of positive returns in 2022, albeit more moderate returns than we saw in 2021. Buying on dips or accumulation would be an ideal strategy. We would encourage investors to focus on quality large and midcap companies available at reasonable valuations.
Fixed Income Outlook
While the RBI's commentary focuses on supporting growth, the central bank is well on its way to normalizing monetary policies. While the RBI has been vocal about its unconditional support for growth, the stickiness in the headline inflation has forced the RBI to rethink its strategy. The RBI's action to conduct 3-day variable rate reverse repo shows its clear intention to suck out liquidity in the system. We expect the RBI to hike interest rates in the second half of 2022 if inflation remains elevated for an extended period.
As we expect interest rates to be volatile, it is best to avoid funds investing in long-dated securities. Thereby, investors can consider investing in securities with shorter maturity (short duration funds and banking & PSU funds). Also, one can consider investing in floater rate funds as returns are adjusted based on prevailing yields in the market. To benefit from the steepness of the yield curve, one can invest in funds with 2.5 to 4 years of duration and run a rolldown strategy. Investors can continue to hold their investments in short (including money market) to medium duration funds as we expect a limited impact on these funds for a given change in interest rates. An investor invested in a long-duration fund can exit their holding after considering the tax event. However, investors invested in long-dated target maturity ETFs/Index funds can continue holding them until maturity.