What Could Move Markets In 2022?

Que Sera Sera….

Let us make some intelligent guesses as to what could move markets in times to come, from a one-year perspective.

COVID –Omicron.

Vaccinations against Covid are effective & r getting better, but it is still sometimes when it completely goes away. The world will have to learn to live with it for a while.

Omicron is transmitting at a very fast pace but hasn’t proven fatal so far. What remains to be seen is what would happen if a large number of people get infected at one go & in one territory. Would it be fatal then?

Interest Rates At US

US Fed has indicated very clearly that in 2022 there will be 3 interest rate hikes to battle high inflation. World markets have started to come to terms with it & are factoring it accordingly.

India Growth Story – Economic Indicators.

IMF has stated that we will grow at a rate of 9.5% in 2021. This is the highest growth rate for any country this year. As per IMF, we will grow at the rate of 8.5% in 2022.

In the period of April-June 2020, we logged in a negative growth rate of -24.4%. Same quarter in 2021, we are + 20.1%, more so this is the first time in our independent history that we have grown so robustly.

Wholesale Price Inflation (WPI) is at 12 year high. It was at 14.23% in Nov ’21. This is primarily due to the rise in food prices especially of vegetables, minerals & petroleum products.

Per Capita Income is down by 8.24%.In 2020-21 this has come down by Rs 8951 & was at Rs 99,694. In 2019-20 we were at a record high of Rs 1,08,645.

The unemployment rate has improved from where we were in April 2021. In April the rate was 7.97%, in May at 11.84% and in Nov this has reduced substantially to 7%.

42 startups got the proverbial Unicorn status in 2021. In 2011 Inmobi was the first Unicorn ($ 1 billion valuations)startup. Today after 10 years we have 79 Unicorns & counting.

Stock Markets

Production disruptions, intermittent market closures, raw material price volatility & credit availability were the key reasons affecting market players in the Covid environment.

Mid & Small Cap stocks have rallied a lot in 2021 which has pushed their valuations up tremendously. Earnings growth & valuations, two counteracting forces will influence the performance of mid & small caps in 2022. Currently, after a solid run in the past 18 months, their valuations are high, both against the trend as well as large-caps. This high valuation will weigh down its relative performance.

Key large players in many sectors have grown faster than respective industry averages. And with stretched valuations in mid & small caps, large caps have a better chance of delivering in 2022.

With generous liquidity coming to an end, investors need to be careful with stocks whose valuations are very high relative to their past trends or that of peers.

However let us not forget that the Indian economy is at the start of a cyclical upswing, the two-year period up to Covid saw a sharp downswing.

Methinks that if the strength of the earnings recovery over the next 3 years is robust then we need not worry much about falling liquidity. A balanced view that considers medium-term growth prospects along with falling liquidity, would be more appropriate.

The year 2022 is going to be absolutely event-driven, both nationally & globally. Asset allocation will hold the key to investing. Spread yourselves across Large, mid & small caps & Dynamic Asset Allocation themes. Remain true to your risk profile & appetite. Identify your goals, plan meticulously for your desired returns & steadfastly, stay the course.

And yes, Indian stock markets are the place to be & stellar returns will come if one invests wisely & stays the course, keeping your life goals in mind !!!

Wishing all my investors a very happy, healthy & eventful New Year 2022!