Though markets can potentially give double-digit returns in 2022, it is unwise to expect that the markets will run up as swiftly, Yesha Shah, Head - Equity Research, Samco Securities Ltd – said in an interview with Zeebiz’s Kshitij Anand.

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Before joining Samco, Shah worked with the Indian arm of an international network of accounting, tax, and business advisory firm, where she specialized in advising corporates and PE clients on corporate restructuring, including mergers and acquisitions. Edited Excerpts:

Q) Another year of double-digit returns for investors when benchmark indices might close with gains of over 20% each beating fixed income instruments hands down. What is your view for the markets in 2022?

A) Propelled by ample liquidity, healthy recovery in the economy, and pick-up in corporate profits, 2021 has indeed been a remarkable year for our markets.

As we step into the New Year, another variant of COVID-19 flags uncertainties. We believe that the markets hereon will continue to do well compared to other asset classes as the narrative of the Indian economy remains promising.

Multiple growth levers are in place for India and the accelerated CAPEX cycle backed by the government spending is also expected to further boost earnings.

Having said this, though markets can potentially give double-digit returns in 2022, it is unwise to expect that markets will run up as swiftly.

The easy phase of money-making is behind us and now the Alpha will be generated by superior stock selection. Hence, a bottom-up approach would be most ideal to play 2022.

Q) The US Fed signals 3 rate hikes in 2022 – how will it impact the Indian markets, bonds and currency?

A) Typically, the rate hike by the US FED is likely to dampen FII flows in the Indian markets – both in equity and debt. In anticipation of accelerated tapering, FIIs have been net sellers each day of this month in the secondary equity market space.

This pulling out of funds by foreign investors also puts downward pressure on our currency. Theoretically, to keep Indian securities still attractive for FIIs and to protect the weakened rupee from adding on to inflationary pressures, the RBI may need to hike policy rates faster than anticipated.

Therefore, RBI’s stance in the February meeting and the roadmap to interest rate hikes will be a key monitorable.

Q) As we close the year 2021 – small & midcaps indices almost doubled compared to benchmark indices. Do you see a similar outperformance in 2022 from the broader market space?

A) Small and Midcap outperformance was not surprising as they had delivered a muted performance in 2018 and 2019. The stellar returns were driven mainly due to FOMO as retail investors bought out each dip.

In the correction, we are witnessing that the small and midcap have clearly fallen more. As these stocks provide an opportunity to generate higher returns and as more value seems to be emerging, select small and mid-caps can certainly outperform even in the coming year.

Q) Which sectors are likely to hog the limelight in 2022?

A) Real Estate and Industrials are sectors to look out for. Talking about real estate first, the industry has consolidated leading to market share gains for organized players.

On the demand side, there has been a consistent increase, especially in residential real estate, where sales, as well as launches for last quarter, have surpassed pre-pandemic levels.

With this and other favorable macro factors such as decadal high affordability, low-interest rates, government push, this sector can do well in 2022.

For industrials again, multiple positive factors are playing out such as recovery in domestic demand, government spending, China+1 theme, the impetus to manufacturing companies through tax cuts, improving order inquiries to name a few.

Q) Any stock or sector that could turn out to be a dark horse of 2022?

A) The banking sector can be an outperformer and lead the rally going forward. This sector has been a laggard not only since the pandemic but also on a YTD basis.

Banking has also been the major casualty of FII selling spree. When RBI does hike the policy rates, banks will benefit through increased NIMs and the sector’s outlook looks promising with improving asset quality and pick up in CAPEX cycle.

The valuation of the overall sector also looks quite reasonable with more than half of the Bank Nifty constituents trading at less than their 3-year average P/B multiple.

Q) What are your views on markets in terms of earnings recovery in 2022, as well as valuations when compared to global markets?

A) After several years of subdued performance, earnings and ROEs for the broader market as well are improving. We have seen very few downgrades in the past months, and if Omicron doesn’t derail the economic recovery, the corporate earnings trajectory continues to look promising.

On the valuation front, India has significantly outperformed its peers this year and even though we have been seeing a healthy correction, the current valuation is still expensive compared to most of the EMs as well as India’s long-term average.

And though this premium will narrow down, it will not zero in considering we are the fastest-growing large economy in the world and other various tailwinds that continue to make India attractive in the long run.

Q) What are your views on IPOs hitting D-Street? Do you think that there is general expectations IPO is equal to quick money? How should investors look at investing in the IPO?

A) Over 30% IPOs listed at a discount in the second half of the calendar year and almost half of them currently trading below their issue price.

We are also seeing listings where during the subscription period the grey market premiums are healthy, but the debuts are weak due to uncertain market sentiments.

This has sent warning signals to those investors and HNIs who only look at IPOs as easy money-making mechanisms. Investors should therefore gauge not only the grey market premium but also evaluate the fundamentals and relative valuations of the companies, to prudently invest in IPOs.

Q) It has been an exciting journey for retail investors which joined D-Street party recently (1.8 cr Demat accounts as on October 2021). Clearly there is rush from retail investors to invest in equities. SIP flows surpass Rs 11000 cr. What is the trend you foresee for 2022?

A) We remain optimistic on the demat accounts openings backed by increasing financialization of savings and better asset class returns provided by equity.

However, like the rally we have seen this year, whether retail investors again do the heavy lifting and lead the next leg of the rally, only time will tell.

(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.)