2021 has been the most actionable for the primary market. Several digital companies have entered the market this year and have raised huge amounts of capital. Also the market has been in an uptrend except for the last few months. The market has been volatile for the past few months amid rising inflationary pressures and signs of tightening monetary policies from the US Fed. FIIs have also been seen selling heavily, which has affected the market.
Now 2022 is starting with new hopes amid tightening monetary policies, hike in interest rates and fears related to COVID-19. From a broader perspective, the economy is showing signs of strength. Along with this, the results of the companies are also showing signs of uptrend. A recent report by Motilal Oswal said that amidst the simultaneous presence of two conflicting factors, it is expected that the broader market will be seen trading in a range in 2022. However, some sectors can be seen doing well.
Motilal Oswal says that the financials sector The performance may be good in 2022. The big banks seem to be in pretty good shape. It is also very strong from a credit quality perspective. If Covid doesn’t create any major problems, the financial sector can do very well in 2022.
From the stock market perspective, the calendar year 2021 was not good for the insurance sector. However, now the conditions have become quite positive for them. 2022 can prove to be very good for the insurance sector as now their income is increasing and their valuations are also looking cheap. Hence, this sector will remain on the radar of investors going forward.
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Pharma is Motilal Oswal’s second favorite sector for 2022, Motilal Oswal believes that this sector is a structural play and given the situation of COVID, 2022 can also prove to be good for it. We are seeing that some of the domestic pharma companies doing business in the US have started doing well. We expect large pharma companies to do well in 2022 from a stock market perspective.
Motilal Oswal’s next favorite sector is real estate, There has been a big revival in the real estate sector in the calendar year 2021. Motilal Oswal believes that many stocks in the real estate sector can be seen performing strongly in 2022. The revival of this sector will continue in the future. The demand of the sector is continuously improving. Also the supply is still limited. Motilal Oswal further says that if COVID is controlled, then from the second half of this year, commercial real estate will also see us getting excited.
Now let’s have a look at the themes which Motilal Oswal believes will continue to fuel the stock market in 2022 as well.
The first of this is the emphasis on digitization of companies- Motilal Oswal believes that digitization was a big theme in the calendar year 2021. During this period many internet based new age companies came in the market. Digitization here also means IT companies. India’s IT companies are currently growing at the fastest rate in the last decade. We may see this trend continuing in the next year 2022 as well.
The next theme to have an impact on the market will be capital investment – for the last 5 years, both private companies and house hold capex was visible. With lower interest rates and pent-up demand, we can now see an uptick in both domestic consumption and private corporate investment. Apart from this, the focus of the government will be on increasing employment. Due to which we will also see an increase in government expenditure.
However, as we said in the beginning, the market is likely to trade in a range bounding range between a pick-up in inflation and an increase in interest rates. This means that companies whose valuations have become very high. We can see a correction coming in them and good cheap companies can be seen moving upwards. Apart from this, many high valuation companies consume commodities. In such a situation, if commodity prices continue to rise, then their margins may come under pressure. Keeping this in mind, we can say that the next year will not be a broad based rally but bet on select quality stocks.
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