Dalal Street Voice: 2022 will be more volatile than 2021 for equity investors; sector rotation to work better: Mohit Ralhan of TIW Private Equity

Mohit Ralhan, Managing Partner & Chief Investment Officer of TIW Private Equity, said that 2022 is expected to be relatively more volatile, when it comes to equity investing, overall, investors should still expect a lower double-digit return.

In an interview with Zeebiz's Kshitij Anand, Ralhan said that a sector rotation strategy is likely to work better with a focus on a few sectors like technology, real estate, and consumer amongst others.

Edited Excerpts:

Q) US Fed signals three rate hikes in 2022 as the inflation fight begins. How will it impact Indian markets?

A) The recent announcements by the US Fed are likely to decrease the liquidity in the emerging markets (EMs) including India.

Over the last few weeks, Indian markets have been undergoing through a downward pressure in anticipation of the rate hike by Fed and accelerated tapering, and therefore some part of the impact was already priced in.

There was uncertainty on the quantum of tapering and schedule of the rate hike, which has now become clearer. This information will also get priced in over a few sessions as different market participants do their own analysis and react to this.

This is primarily driven by liquidity and global asset allocation frameworks used by foreign institutional investors.

Since the Indian economy has been recovering quite strongly, the overall impact of Fed announcements is expected to be relatively smaller, and post some stabilization, the bull run in India is likely to continue based on domestic factors.

Q) We have seen some big moves on the currency. How will it impact the currency in the short and medium-term time frame?

A) In the short-term there will be pressure on INR, as the likely impact of the US Fed announcement is a reallocation of global investment portfolios resulting in the outward movement of the dollar.

In the medium term, it should get stabilized and may also strengthen a bit, depending upon the market actions and policy response of the Reserve Bank of India (RBI).

Q) Could we see some more outflows from FPIs as US Fed begins to tight monetary policy?

A) The dot plan of the US Fed has been outlined quite clearly, which indicates that the Fed expects to raise policy rates three times in 2022 and three times in 2023 based on median projections.

At the same time, the US Fed has also indicated that it will monitor the risks posed by the Omicron variant and it is likely to postpone rate hikes if the economy starts taking a hit.

Since this information is very much public now, the markets will price it in over a few sessions with some outflow from FPIs but there is not likely to be an elongated outflow from FPIs due to this specific reason.

India’s domestic factors including the sustainability of its economic recovery and handling of the Omicron variant will be more critical.

Q) What should be the strategy of investors in 2022 amid potential 3 rate hikes from the US Fed, and the RBI could also look at raising rates?

A) 2022 is expected to be relatively more volatile when it comes to equity investing. Overall, the investors should still expect a lower double-digit return.

It is expected to be a year of normalization and volatility can be used by long-term investors to buy stocks at favorable prices.

A sector rotation strategy is likely to work better with a focus on a few sectors like technology, real estate, and consumer amongst others.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)