Even after significant FII outflow in 2021, Jyoti Roy, DVP Equity Strategist at Angel One says they FIIs will sell Indian stocks till Omicron variant-led wave does not peak and the outflows will slow down once the wave is over.
"While FII outflows should slow down once the worst of the Omicron wave over, we do not expect major inflows in 2022 as global liquidity flows will slow down due to aggressive tapering by the US Fed next year."
On the Budget 2022, while there can be some populist measures in the since state elections are approaching, it is highly unlikely that the government will go overboard given the fiscal constraints, says Jyoti Roy who has over 10 years of experience in the industry.
Among sectors, Roy says the Banking & NBFC space would be one of the top themes that investors can add to their portfolio for 2022 though there could be some near term correction in them along with the markets.
FIIs were net sellers in the year 2021, offloading more than Rs 85,000 crore worth of shares, but DIIs managed to offset loss by buying similar worth of shares during the year. What could be reasons for both the sides (FIIs and DIIs) and will the FII continue to get impacted amid faster bond tapering and rising expectations for rate hikes in the US?
FII selling was initially driven by the hawkish commentary of central banks given that global inflation has been running well above their comfort levels for longer-than-expected. Moreover the threat from the new Omicron variant has also added to uncertainties in the market given its rapid spread worldwide. DIIs have been net buyers in the markets led by mutual funds which have seen net inflows as compared to outflows in FY2021.
We expect that FIIs will sell Indian stocks till Omicron variant-led wave does not peak. While FII outflows will slow down once the wave is over, we do not expect major inflows in 2022 as global liquidity flows will slow down due to aggressive tapering by the US Fed next year.
How do you sum up the year 2021 that priced in and saw several key events? What are the key events to watch out for in the year 2022?
Though 2021 was an eventful year, it turned out to be a good year for investors except for the past one month. We saw multiple waves of Coronavirus during the year starting off a second Covid wave in developed economies at the beginning of the year and a third wave towards the middle of the year due to the delta variant. However record fiscal and monetary stimulus by the US Government and Fed ensured that consumption demand remained strong. As a result we have seen global equities do well in 2021.
While consumption demand remained strong, frequent lockdowns led to supply chain disruptions which led to sharp increase in prices of goods and commodities thus pushing global inflation to its highest levels in the past three decades. Given very high levels of inflation the Fed has hastened its tapering plan which is now expected to be completed by March 2022 as compared to the earlier timeline of June 2022.
To start off, the progress of the Omicron wave and its impact on global growth will be the key event to watch out for. Union Budget 2022-23 on the 1st of February will be another key event. Post the Union Budget, focus will shift to the outcome of state elections including the key states of UP and Punjab.
However normalization of supply chains will be the key factor to watch out for in 2022. A quick normalization of supply chains globally will lead to fall in prices of goods and commodities which in turn will lead to lower inflation. Lower inflation will give the US Fed elbow room to be less aggressive in hiking rates as indicated by the dot plots of the last Fed meeting in December 2021 which will be positive for risk assets including Indian equities. However continued disruption in supply chains next year due, will result in continued higher inflation levels which will result in aggressive rate tightening by the US Fed as indicated and will be negative for equities.
How do you sum up the primary market that saw fund raising of more than Rs 1.3 lakh crore in the year 2021? Do you expect similar kind of fund raising in 2022 and can you name the companies that are planning IPOs in 2022?
Capital markets witnessed an exceptional year as record money was raised through initial public offerings. The highlight of 2021 was the listing by many new age tech companies including Zomato and Nykaa. While we expect lot more companies will come for listing in 2022 there is bound to be moderation in the quantum of funds raised given that liquidity will not be as abundant next year given that the Fed will be through with its tapering by the end of the first quarter. New age tech companies like OYO, Flipkart and Snapdeal are some of the new age companies that have announced their intention of coming out with an IPO. Along with the new age tech companies investors will also be keenly awaiting the LIC IPO.
The government has consistently been announcing several measures to lift the economic growth. Do you expect any significant announcement in the Union Budget 2022?
The Government has been announcing various measures outside the budget in order to lift economic growth including PLI (production-linked incentive) schemes for various sectors and additional spending of Rs 3 lakh crore for FY2022. We believe that the Government will continue to focus on targeted spending while maintaining fiscal discipline and therefore there is unlikely to be too many populist measures in the Budget.
While there can be some populist measures in the Budget prior to the state elections, it is highly unlikely that the Government will go overboard given the fiscal constraints.
The street is largely expecting LIC IPO in the last quarter of FY22. Do you expect the government to continue to focus on other divestment and monetisation of assets in the Union Budget 2022 as well? Can you name the companies that can be on government's agenda for divestment or monetisation?
While the Government has been able to successfully divest Air India this year, the BPCL divestment has got pushed back due to one reason or the other. Therefore the BPCL divestment will continue to remain an agenda for the Government.
Moreover the Government had also announced their intent on selling stake in few of the PSU banks. Therefore we expect that divestment and monetization of assets will continue to remain on the agenda of the Government for Union Budget 2022.
Have you spotted themes that investors should add in their portfolio for 2022 and why?
We believe that the Banking & NBFC space would be one of the top themes that investors can add to their portfolio for 2022 though there could be some near term correction in them along with the markets. However from a longer term perspective we believe that the worst is over for the banking sector in terms of asset quality issues though a possible third Covid wave can lead to some incremental stress in asset quality.
Therefore investors can use the near term volatility to increase allocation to the BFSI space. We also continue to remain positive on the digital theme and believe that Indian IT service companies will continue to witness strong growth over the next 2-3 years given accelerated adoption of digital technologies.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.