By Dr. Ravi Singh – VP and Head of Research, Share India
1. Multibaggers of 2021 (Stocks from BSE 500/Midcap/Smallcap): What helped small and mid-cap stocks clock unprecedented return this year. Outlook going forward in next year*
Balaji Amines, Happiest Minds and Deepak Fertilisers of BSE 500 has given massive returns in 2021 and are termed as the multibaggers of 2021. CDSL, Mastek and Route Mobile among the small and mid cap segment has also outperformed the market.
The key factors in driving the market in 2021 were improved macro indicators, strong global liquidity, increased economic activities, significant pickup in vaccination, improvement in the consumption-related data, ease in monetary policy and sharp recovery in corporate earnings.
Mid caps and small caps have majorly user-performed large caps since last 3 years. Being cheaper than the large caps, mid and small caps grew much faster in an economic recovery as compared to large caps. The increased interest of FPIs and retail participation in these segment along with the monetary liquidity for an infrastructure push by the government is going to benefit the sectors in longer term. As more government structural reforms in manufacturing and infrastructure are still in pipelines, we expect the stocks in mid and small cap to outpace next year also.
2. A roundup of retail investors joining D-Street in 2021: Data throws some interesting numbers in terms of retail investors participation in stock market rally. What brought about this change in perception and what does it say about their approach
During the covid pandemic, when most of the citizens were left with no jobs, salary cuts, uncertain economic future, financial paralysis, business losses due to lockdowns and restrictions, started looking for ways to support their financial needs. This gave a rise to a technology penetration also when a whole new world of online access were adopted by the Indians. This further led to improved awareness towards various investment options and market news. The potential investors of 2 to 3 tier cities who were earlier ignorant about portfolio diversification are now empowered with online trading tools and real time price movements. Low interest rates on other investment options like FDs and debts have make them less attractive and people are looking for higher return avenues. With the growing influence of social media and digital infrastructure, we expect this rise to continue.
3. Top events factors/themes to watch out for in 2022: Top 3 events that shaped the narrative of the Indian market this year
Factors to watch out in 2022
Covid 19 – Omicron
Covid 19 has crumbled most of the world stock indexes in 2020 and was the main driver of the market. The vaccination drive has induced the hope of economic recovery after the reopening, but the new variant Omicron is again sending anxiety ripples among the investors. The development wrt Omicron would be one of most important theme to watch out in 2022.
Inflation –
The one thing that supported the stock markets worldwide post covid pandemic was the loosen fiscal and monetary policies by the central banks to support the economic outputs and easing of the bottlenecks. However, the way inflation is increasing due to higher commodity prices and crude oil, the central banks would be forced to tighten the monetary policy thus raising the borrowing costs and draining the market liquidity. For the economies which are still in their recovery mode, the tightening may be among the biggest downside risk next year.
Top 3 events of 2021
- Nifty has given more than 40% returns in 2021 so far, while Midcaps and Smallcaps were the front runners with returns of around 70% and 80% respectively.
- The year saw a sharp spike in US benchmark 10-year bond yields tripling from 0.512% in Aug-20 to 1.758% in Mar-21.
- Reliance raised $35 billion by monetizing stakes in Jio Platforms and Reliance Retail apart from a $7 billion rights. It helped Reliance become zero net-debt.
4. IPO performance in 2021 and outlook for the year in 2022: Do we see this rush continue going forward and could 2022 beat this year in terms of returns generated by the IPOs this year.
In 2021, equity markets had a historical move as the benchmark indices touched new lifetime highs with off 18000 and 60000 marks for the first time in history due to improved macro parameters, higher liquidity, and strong recovery in corporate earnings. On this positive sentiment in the benchmark indices, a majority of IPO performed very well and turned to multi-baggers.
Given the prospect of further rise in inflation, there are chances that most of the central banks may raise interest rates to curb the liquidity. The growing uncertainty and fear over Omicron would drive the market momentum next year. Global economies are already facing high inflation and economic bottlenecks and still in revival mode post Covid outbreak. In this scenario, if new lockdown and restrictions are imposed then it would be very difficult to maintain the pace of recovery. The year 2021 has been great in terms of generating returns from investments in stock market but year 2022 seems to be more challenging.
5. Sectors that did well in 2021 and what should investors do in 2022: Top 3 highlight sectors for this year and where should be investors looking for investment opportunities next year.
In 2021, Banking, Infrastructure, IT, Auto, Metals and Pharma were among the top sectors that had given tremendous returns to the investors.
As the economic cycle has picked up and the revival in corporate earnings is strong, we expect the same strength to continue in 2022. The banking, financial services, technology, housing, and insurance sector will be the main driver for the market due to their improved outlook, current lower interest rate regime, and augmented government spendings. Power, Railways, and Oil & Gas space will remain attractive from a mid-to-long-term perspective. Other sectors like Travel, Tourism, leisure, Real Estate, and ancillaries like cement and other building material companies are also expected to contribute in 2022. This optimism has positively replicated on the technical charts as well.
Based on the above themes, the top picks we recommend are ONGC, Gail, HDFC Bank, TCS and SBI.
