The Indian markets delivered healthy returns for yet another year, buoyed by a strong rally in equity markets globally. The easing of lockdown restrictions coupled with a sharp recovery in economic activity, dovish monetary policy and strong government support aided sentiments. However, it wasn’t an easy ride for the bulls as the deadly second wave of COVID, sticky inflation, FII outflow and lastly the new variant continue to challenge the bullish sentiment. Though we lost the momentum towards the end of the year and corrected nearly 10% from the top, the benchmark indices managed to end with decent gains of over 20%.
As we enter 2022, the equity markets are at a critical juncture, battling the risk of rising COVID cases and tightening monetary conditions. Moreover, crucial events like the Union Budget and state elections would further add to volatility in the initial months. Amid all the factors, we continue to remain constructive on Indian equities in 2022, driven by economic recovery and pick-up in corporate earnings. Participants should approach the markets with the “bottom-up” approach and focus on the businesses which have the potential to outperform.
It is the fourth largest sector in the Indian economy. The sector performance has been strong for the past 1-2 years largely led by higher demand and sales as well as volume-led growth. The FMCG companies are targeting rural areas as there is a noticeable scope of growth. On the margin front, the sector is facing pressure due to increase in raw material prices however price hikes and saving initiatives will offset the impact. In the long term, high disposable income, improvement in rural sentiments, continuous demand and shift towards branded products will drive growth for the sector.
Due to Covid-led lockdown, IT was one of the sectors which saw a boost in demand due to the adoption of work from home (WFH) culture. The companies benefited from rising demand for digitalization, cloud adoption and increase in usage of software and platforms which has become a new normal. Going ahead, the sector has scope of growth given the strong demand environment, large deals on cards, rising digital usage and sustainable margins.
India enjoys an important position in the global pharmaceuticals sector. The pharma sector was facing various issues like drug pricing, approvals from USFDA, etc. in the pre covid era. However, it witnessed outperformance during the covid as compared to others due to increasing demand for immunity supplements, life-saving medicines, vaccines and chronic medicines. We believe the demand for medicines will continue, given the covid is yet not over and also due to rise in the lifestyle diseases like diabetes, blood pressure, etc.
The Indian telecom industry has witnessed challenging times over the last few years owing to increased competitive intensity. However, the worst seems to be over in terms of pricing war and tariff hikes would be the way forward. The focus of telecom companies would be on premiumization through the addition of 4G subscribers and enhancing digital offerings which will not only help in increasing ARPUs but also increase customer stickiness.
The Indian diagnostic sector has emerged as one of the fastest-growing segments in the healthcare sector. We expect the trend to continue on the back of multiple growth drivers like change in demographics, increase in lifestyle diseases, higher income levels, rise in preventive testing, and deeper penetration. Further, increased spending by the government on healthcare bodes well for the industry. Additionally, we expect diagnostic chains which form 16% of the overall diagnostics industry to continue to strengthen their position due to their wide portfolio of tests and strong brand presence.
After peak volumes in FY19, the auto industry has witnessed two consecutive years of volume decline. This is not only due to the pandemic but also on account of regulatory changes such as the shift to BSVI, liquidity crisis amongst NBCs, rise in fuel prices, insurance cost and changes in safety regulations. Moreover, the semi-conductor shortage this year has also impacted volume recovery. Nonetheless, we expect gradual recovery led by easing supply-side issues, low base effect, pick-up in economic activity, improving consumer sentiments and low-interest rates.