Investors should view 2022 as a "year of transition" as excess liquidity gets withdrawn and interest rates inch up, according to Aditya Birla Sun Life AMC's annual equity outlook.
Valuation multiples for Indian equities are currently “elevated”, but should normalise going forward given depressed earnings and high liquidity, according to the fund manager. “In the short term, market action may be more stock-specific and returns may be modest.”
However, it remains positive on Indian equities on a medium-to-long term basis. “Market breadth would continue to improve as the domestic recovery gathers momentum and domestic cyclicals should do well, the report said. “Overall, we believe Indian equity markets can give returns slightly below earnings CAGR over next three years.”
The asset manager also advised investors to use fall in market to increase their exposure to equities. “In the current environment where market breadth is improving, bottom-up stock picking is likely to do well.”
Key Themes, Sectors Of Interest In 2022
Digital transformation: Modernisation of core infrastructure, adoption of public and hybrid cloud models and increased adoption of artificial intelligence are driving higher tech spends.
Rise of domestic manufacturing: Production-linked incentives favourable for domestic manufacturing. High budget outlay for infrastructure to bode well.
Corporate banks, fintech: Structural story of increasing market share based on high capitalisation, better asset quality and healthy liability franchise. Fintechs disrupting space.
Cyclical revival in real estate: Structural tailwinds such as low interest rates, stagnant prices, increased remote working, reduced stamp duty, industry consolidation and unsold inventory.
Consumer discretionary: Pick-up in low-ticket discretionary, retail, automobiles etc., based on rising income levels, low penetration, increased electrification.
The fund manager said “easy money” has been made in mid and small caps, but they still have potential if the Indian economy does well as they're closely tied to it.
It also said a revival in earnings is expected in banking and telecom sectors, which had been big drags in the past. Growth in energy—majorly Reliance Industries Ltd.—IT, materials and consumer discretionary is also expected.
Impact Of Startups' Listing
The asset manager said the listing of several unicorns and deca-corns over the next few years would further contribute to India's market value.
It said the listings of new tech companies in 2021 have been successful and it shows that the markets have sufficient breadth and depth to absorb such listings and that investors are now savvy enough to value new business models.
In addition, about 150 private companies could potentially list in public markets over next few years with financials and new-economy tech-enabled sectors accounting for most of the estimated value in the new listings.
Watch BloombergQuint's Niraj Shah in conversation with Aditya Birla Sun Life AMC's CIO Mahesh Patil:
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