Equity Market Outlook
2021 proved to be an excellent year for the benchmark indices. Especially the second half of the year when markets rallied significantly, touching all-time record-highs with Nifty nearing 18,500 and Sensex crossing 61,500. However, the rollercoaster ride started in October and November when investors were concerned about the rising Omicron cases worldwide, causing markets to show signs of volatility, primarily in the small and midcap segments, which fell over 10% from their lifetime highs during the quarter.
FIIs turned net sellers for the quarter, contributing to the volatility.
The latest U.S inflation numbers stood at 7%, the highest in 4 decades. The news caused tremendous selling pressure across most markets. Indian inflation, on the other hand, has been in control. With U.S inflation numbers at this level, we can expect the Fed to slowdown liquidity, which might again cause some pressures on equity markets.
Active fund management with a core focus on stock selection is critical right now since company fundamentals and earnings will be key contributors to returns. We can see the rally shift from liquidity and value to fundamentals and quality.
Debt Market Outlook
2021 proved to be a mixed bag for debt schemes as interest rates hardened by pulling down returns of the debt funds in the market. Interest rates have remained at all-time lows for the last few quarters.
The Fed has signalled that rate hikes might come sooner than expected in its recent monetary policy. Bank of England set a precedent by being the first global bank to raise rates in the post-pandemic world. Global bond yields have also shown the first signs of volatility and seem to be rising gradually.
Key Events to look for in 2022 / Q4 FY 2022
Elections in Punjab, Uttar Pradesh, and the upcoming Budget 2022 will likely boost domestic market sentiments. Even though Omicron is spreading faster, the market doesn't seem to expect any restriction on economic activity anytime soon that will impact growth and earnings.
A trigger that can hinder this uptrend might be high inflation, leading the Fed and other central banks to hike interest rates above current projections. If inflation is kept under check by the central banks, markets may continue the rally.
Fed has signalled three rate hikes this year, with the first one expected to come as early as March 2022. Interest rate hikes and the Fed Monetary Policy will be vital tone-setting events for equity markets this year.
The stock markets could remain bullish for the first half of 2022, and factors such as vaccination campaign, spread of the Omicron wave, earnings and recoveries across industries, RBI's policy decision in response to key global banks interest rate decisions would dictate the directions of the domestic market.
What should investors do now?
No one can predict exactly how markets move or how much reaction will any event spike. An investor can continue investing as per their goals and plan, regularly review portfolios with their advisor, take tactical calls to boost alpha and minimize the downside, and not disturb the wealth creation journey.
To make an informed decision, it is wise to speak to a trusted investment advisor. Contact AssetPlus to get your portfolio reviewed and make the best out of the bull market.