We believe we are amidst a cyclical economic recovery and some of the cyclical sectors like large banks, consumer discretionary & materials are expected to see the maximum earning upgrades, Sorbh Gupta, Fund Manager- Equity, Quantum Mutual Fund – said in an interview with Zeebiz’s Kshitij Anand.

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Q) What are your views on the market for the year 2022 after a double-digit gain seen in 2021?

A) Equity Markets have done well to climb the wall of worries in 2021. The benchmark index (Sensex) has given a return of over 20% & appears richly value on a PER (price/earnings ratio) basis.

With the easy part of the economic, and equity market recovery behind us, we believe 2022 will be a stock picker’s market where an actively curated and attractively valued portfolio can give reasonable returns.

Q) The next big event that investors will watch out for is Budget 2022. What are your expectations from the Finance Minister?

A) Over the years the relevance of the Union Budget for equity markets has reduced as most of the reforms and indirect tax decisions (after GST council formation) are now outside the purview of the Budget.

We expect the Finance Minister to continue to support infrastructure investment and take steps to leave some money in the hands of people so that the consumer demand gets a fillip.  

Q) FIIs have been big buyers in Indian primary markets but sold in the cash market. How do FIIs see India relative to other Emerging Markets?

A) Indian Markets are trading at a premium to their emerging market (EMs) peers. Over the last few months, there has been FII selling, indicating that foreign investors have been booking profits.

However, in the medium and long term, India’s nominal GDP growth will look better than the western world this makes it a sought-after destination for yield & growth-seeking long-term global investors. The conclusion is -- strong FII inflows can continue after a brief pause.

Q) In terms of valuations – India might be trading at a slight premium. Do you think the risk premium will continue in 2022 as well?

A) The Indian markets have traded at a slight premium to their emerging market peers due long term growth opportunities and relatively stable regulatory as well as political regimes.

However, in the middle of 2021, this premium became quite large. We believe Indian markets will continue to command a slight premium over its peer going forward for the same reasons as highlighted earlier.

Q) The year 2021 was all about big bang IPOs. Many tech-based companies made their debut along with companies from other sectors as well. What is the kind of fundraising you foresee in 2022?

A) It appeared counterintuitive as FII’s sold in the cash market due to valuation concerns and queued up to buy some of the highly-valued IPOs. There is still a good pipeline of IPOs waiting for the debut so at least the first half of 2022 appears to be busy for primary markets.  

Retail investors need to be cautious while subscribing to the IPOs market as valuation appears frothy for new listings.  

Q) Which sector could turn out to be Dark Horse in 2022 and why?

A) We are amidst a cyclical economic recovery and some of the cyclical sectors like large banks, consumer discretionary, and materials are expected to see the maximum earning upgrades. Our portfolio has biased towards these sectors.  

Q) Big events which investors should take note of in 2022 that could impact markets and the economy?

A) Inflation/ Interest rate trajectory both global & domestic & Covid-19 resurgence are the two most pertinent variables for the market direction in 2022.  A recovering economy should help continue the earning upgrade cycle & support the markets.  

Q) What will be your advise/recommendations to investors in 2022?

A) A staggered approach is the best way to invest in an environment where uncertainties around covid-19 & inflation are still around.

Investors should not be unnerved by the near-term volatility steadily move towards their optimum equity allocation as per the long-term financial goals through systematic investment plans.

Any sharp correction due to near-term headwinds can offer additional valuation comfort and should be used to allocate more to equities with a long-term perspective.  

Investors can follow our 12-20-80 (12xmonthly expense in a liquid fund, 20% of the remaining allocation in gold & rest 80% in equities) approach towards asset allocation.

It is best suited to navigate near term volatility in different asset classes and achieve the optimum result for achieving long term financial goals  

Q) Any mistakes which one should avoid making in 2022?

A) Existing and new investors should not be overwhelmed by index levels & noise around it (headlines like Sensex @ 60,000) but should look at valuations of portfolios, stocks & MFs one has invested in or plans to invest.  

Investors should also be cautious about popular & hot themes like Electric Vehicles, Consumer Tech & FinTech. While all these are expected to play out well over the long term, some of the underlying stocks are factoring in too much good news & are at bubble territory valuations with no positive cashflow insight for the next few years.

On the contrary, it would be wise to look for stocks and portfolios with a contrarian approach.

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