Motilal Oswal AMC expects these sectors to perform well in 2022

Hence, 2022 is expected to tighten liquidity, increase in interest rates and uncertainty around COVID. However, on the bright side, the economy is showing strength and the corporate earnings cycle is on an upward trajectory. With two opposing themes at play, I expect 2022 to be too range bound for the broader markets, although some sectors may do really well.

a) Financials: The big banks are very well placed with one of the best expected years on the credit quality front in over a decade, till the time covid strikes. We can also see that credit growth has started to pick up. The year of non-lending financials especially insurance was poor from the stock market perspective in CY21, despite the environment turning structurally positive. We can see that CY22 is turning out to be great for them with quick earnings growth and cheap valuations.

b) Pharma: It is a structural game and this sector may remain in focus next year also in view of covid. We have seen some domestic pharma companies doing well with US exposure. We can see big pharma companies doing really well from a stock market perspective.

c) Real Estate: The sector saw a major revival in CY21 and hence outperformed many stocks in a big way. We can see that this revival continues as the demand scenario is improving and at the same time the supply remains restricted. Commercial real estate may see a revival later in the year if COVID is brought under control.

Themes that may continue:

a) Digitization of the economy: This was the major theme during CY21 with IPOs of many new age digital companies. Digitization also means that Indian IT companies are growing at the fastest pace in the last decade. We can see that this topic will continue to be one of the major topics in the next year also.

b) Capital Expenditure: Since both private capital expenditure and domestic capital expenditure were missing for the last 5 years, we can see a revival driven by lower interest rates and sluggish demand. Also, the government has to focus on job creation which can lead to higher capital expenditure. However, as stated in the beginning, the market may remain limited as inflation is on the rise and interest rates may start rising. This would mean that companies with very high valuations may begin to see relative improvement as the discount rate begins to rise. Also, many high valuation companies are consumers of the commodity and margins could remain under pressure if prices remain firm. Therefore, next year may not be a year of broad-based rally, but will be a year for stock pickers.

One needs to be very selective as price destruction can be significant in some areas.

Santosh Kumar Singh is Head of Research at Motilal Oswal Asset Management Company.