Even though coronavirus-related uncertainties and inflation threatened to take the stuffing out of stocks, markets closed 2021 with over 20% gains. Let’s explore if a bull market retaliation is on the horizon this year, based on a number of rising variables.
Will the uptick continue this year?
Headwinds in the first half of this year might include soaring valuations, the likelihood of monetary policy normalization beginning in early 2022, and the risk of a short-term economic disruption due to the pandemic. Equities, on the other hand, are likely to beat bonds and cash, but with lower returns. However, earnings growth expectations, which are the key driver of mid-cycle equities returns, remain strong, with upgrades probable. According to consensus, Nifty index earnings per share (EPS) would expand at a CAGR of 16 percent from FY19 to FY23, compared to 4 percent from FY12 to FY19.
Markets are expected to face liquidity limitations in 2022 if global central banks’ cheap money supply begins to dry up. To date, major central banks have been purchasing assets in order to provide money and maintain favourable financial conditions for economic recovery. They’re likely to start cutting down on purchases now.
Will primary markets keep shining?
The IPO pipeline remains solid, with 35 businesses expected to raise over Rs 50,000 crore and another 33 companies seeking market regulator approval to fund approximately Rs 60,000 crore. This year will also see the much-anticipated big IPO of Life Insurance Corporation of India. In 2021, 63 public offerings raised a total of $1.18 trillion, a new high. This was approximately 4.5 times the Rs 26.613 crore collected in 2020 from 15 share sales and nearly twice the previous record year of 2017.
What happened to Indian stocks in 2021?
Global tailwinds and confidence about India’s development propelled markets on a roller coaster journey. India stood out among developing nations as a preferred location for international investment. The Sensex and Nifty gained 22 percent and 24 percent, respectively, for the sixth year in a row, their biggest year since 2017 when both climbed 28 percent. The BSE MidCap and SmallCap indexes increased by 39 percent and 63 percent, respectively. The total market value of Indian equities increased to $3.42 trillion by the end of 2020, up from $2.52 trillion.
Will the Dalal Street bull run be halted by anxious FPIs in 2022?
As foreign investors reallocate some assets to fixed income instruments, international inflows may be restrained in 2022. However, this may not have much of an impact on domestic stocks. FPIs injected Rs 26,953 crore into domestic stocks in 2021, down 84 percent from Rs 1,70,262 crore in 2020, according to statistics released only a few days ago. This is the lowest level of FPI flows since 2018, when they were net sellers worth Rs 33,014 crore.
In reality, according to the financial year’s figures, FPIs were net sellers in FY22, with outflows reaching their highest level iņ a decade. Despite the fact that the BSE 200, a larger market index, returned a healthy 30%, this is the case.
Some FPI outflows are predicted as a result of the rate rises, and this process has already started, according to experts. However, if the Indian economy and corporations continue to perform well, we may see some money diverted from other markets to India. “The main concern is that if all asset classes come under selling pressure at the same time when rate rises are implemented, it may affect the perspective of Indian retail and HNI groups, and we may see market sell-offs continue, triggering further FPI outflows,” experts added.
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