Where to Invest in 2022
Fortune India|January 2022
Covid-19 made investors shift to riskier assets for higher returns in 2021. Here’s what to expect from different asset classes in 2022.
Avneet Kaur
THE YEAR 2021, hit by the worst of Covid-19, ended unexpectedly well for financial market investors.One reason was pick-up in GDP growth after the sharp dip in early part of 2020. While global economic growth is recovering, India will occupy the title of one of the fastest-growing economies, says Nilesh Shah, Group President & MD, Kotak Mahindra AMC. Real GDP growth is expected to be 9.5% in FY2022 due to lower base and bounce-back by businesses after progressive reopening of the economy. GDP had shrunk 7.3% in FY2021. Nineteen of the 22 high-frequency economic indicators such as index of industrial production are in the positive territory. Taking the cue, Indian stock markets did extremely well for a major part of 2021. The weight of Indian listed companies that are part of the MSCI Emerging Market Index rose from 8% in 2020 to 12% in 2021. Such hearty macro and micro indicators and decent capital market gains are great for investors. So, which asset class will give blockbuster returns in 2022?

It is tough to choose. Apart from traditional investment options such as equities, debt, real estate and gold, the digital boom during the pandemic has amplified retail investors’ interest in asset classes like peer-to-peer (P2P) lending, cryptocurrencies and Real Estate Investment Trusts (REITs). Here’s how these assets may move in 2022.

Equities: Beating Inflation is Key

Nobel laureate Milton Friedman once said that inflation is a form of taxation as it eats into purchasing power. If your income rises 10%, but inflation goes up 15%, you will have to lower consumption by 5% to ensure that savings remain at earlier levels, says Swarup Mohanty, Director and CEO, Mirae Asset Investment Managers. “It’s important to beat inflation. Otherwise, despite decent returns, one can end up becoming poor in the long run,” he says. Equities have beaten inflation over the long term, he adds.

Equities have also done far better than other popular assets such as real estate, gold and fixed income by a wide margin in the last one decade. Nifty 50 rose over 21% in first 11 months of 2021. Small-caps returned nearly twice as much. NSE Small Cap 100 grew 62% in one year till November 30. Nifty 50 rose 31% during the period. Nifty Midcap 100 was up 50%.

However, expectations for 2022 should be moderate, given the high returns over the last two years. “We have seen phases of consolidation amid large bull markets in the past too. This is healthy as it prevents creation of bubbles. Nonetheless, medium-term outlook is strong,” says Mohanty. Any dips should be used to buy, he adds.

Nilesh Shah of Kotak AMC is neutral as he feels equities are fairly priced. He advises investors to remain marginally underweight on small-caps and mid-caps because of valuations and marginally overweight on largecaps. By neutral weight, he means booking of profits, if any, on overweight positions. He also thinks that every correction is an opportunity to increase allocation to equities.

A Case for Global Equities

Indian investors have also taken a fancy to global equities in last two years, especially post the sharp rally in international equity markets after the Covid-19 outbreak in March-April 2020. But there is more to it. While India’s economy is among the fastest-growing in the world, its stock markets are led by traditional sectors such as IT consultancy, financial services, petroleum and consumer staples. In contrast, new themes such as robotics, artificial intelligence, electric vehicles, cyber security, industrial automation, cloud computing, e-commerce and data centre are gaining huge momentum in developed world. “These themes are expected to shape our future and are, therefore, becoming part of portfolios,” says Mohanty. The shares of one the world’s largest companies in market cap, Apple, have returned 488% in last five years. Microsoft shares have risen 412%, Amazon 345% and Google (Alphabet) 251%, during the period.

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