What should be the investment approach for 2022
New Delhi: Rising inflation and change in policy stance by the US Federal Reserve and other central banks including the Reserve Bank of India are seen as key risks for equity markets in 2022 including the new Covid variant Omicron. But as the economic recovery is underway and is going to pick up pace in 2022, analysts believe equity and real estate are going to be the top two asset classes for the coming year.
Despite headwinds, Nomura expects equity markets to deliver double-digit returns. Worth mentioning here is that returns from equity markets go up in a high inflationary situation as nominal revenue and profit of companies go up.
“Material declines for Asia stocks are unlikely, as we see several buffers this time (valuations, positioning, fundamentals). Peaking US inflation, and the bottoming out of growth and modest policy easing in China into Q1-2022 should provide relief for Asia stocks eventually,” Nomura said.
Within the Asian region, the global research and broking house has maintained an overweight stance on China, Korea and Indonesia for 2022. Thailand and Philippines remain their key underweights, and remain ‘neutral’ on India and Singapore in their model portfolio.
Nomura sees corporate earnings growth to remain robust in 2022, which should support high valuation multiples of the Indian equities. However, slowing participation of retail investors is one key risk going into 2022, Nomura said.
However, Nomura believes Covid-19 is a key risk for India. Stretched government finances also raise risk of populism/higher taxes, especially ahead of some state elections, the global brokerage said. It believes India is vulnerable to higher US yields/Fed policy tightening given elevated valuations that can trigger a correction/volatility in Indian equities.
Investment strategy for 2022: Nomura is positive on the auto sector as supply chain bottlenecks are likely to ease going into 2022. The brokerage is also bullish on select private sector banks and GARP (growth at reasonable price) stocks such as EV (electric vehicle) supply chain stocks.
Real estate investment likely to deliver solid returns
As corporates are gradually shifting from the work from home (WFH) to work from office (WFO), demand for commercial real estate is likely pick up going into 2022, say industry experts. Meanwhile, the rising cost of construction is seen boosting demand for ready-to-move-in residential properties.
“Investments in the Indian real estate sector have remained resilient despite the headwinds triggered by the pandemic, adversely impacting the economy and business climate. For the nine months ended September 2021, investments were recorded to the tune of USD3.5 billion, almost 75% of the quantum seen in 2020. Favourable one-time bulk deals have been keeping the investment momentum strong in the last past few quarters. Interestingly, residential and industrial & warehousing sectors have emerged as major beneficiaries this year garnering a combined 36% of the investments. While the office will continue to remain a dominant sector, investments in residential and industrial & warehousing are likely to strengthen in 2022 aided by strong business fundamentals. Income visibility & stability, attractive valuations and identifying the dark horses will underline the investment ethos in 2022”, the Economic Times quoted Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers as saying.